\n<\/p>\n
We\u2019re in the thick of a housing crisis<\/strong>. Buyers are waiting to pounce on properties, but there aren\u2019t any houses to buy. Mortgage rates<\/strong> are high, and prices have risen or stayed flat in most parts of the country. So, where do first-time home buyers turn<\/strong> when there\u2019s nowhere else to go? New construction homes!<\/strong> But it\u2019s not just regular home buyers bidding on new construction<\/a>. Investors are creating more competition as the existing home market slowly trickles out inventory.<\/p>\n Nikolas Scoolis<\/strong>\u2019 team at Zonda has been distributing some of the most comprehensive new construction data<\/strong> for the 2023 housing market<\/strong>, and he\u2019s got some good news <\/strong>to share. With new construction home sales sharply rising over the past year, builders are getting bullish, and home buyers are FINALLY getting their hands on some inventory<\/strong>. But, with so many home builders chasing luxury profits, are affordable houses<\/strong><\/a> even worth building? And while new homes bring some relief to the <\/strong>inventory crisis<\/strong><\/a> we\u2019re facing, it may not be enough to balance supply and demand.<\/p>\n Nikolas will get into new construction market updates<\/strong>, why new home sales <\/strong>are exploding<\/strong>, who\u2019s buying, and the BIG incentives<\/strong> builders are promising buyers.<\/p>\n Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Nikolas: Dave: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Dave: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Dave: Nikolas: Dave: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Dave: Nikolas: Dave: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Dave: Nikolas: Kathy: Nikolas: Dave: Nikolas: Kathy: Nikolas: Dave: Kathy: Nikolas: Kathy: Dave: Nikolas: Kathy: Dave: Kathy: Nikolas: Dave: Nikolas: Dave: Nikolas: Kathy: Nikolas: Kathy: Dave: Nikolas: Kathy: Nikolas: Kathy: Nikolas: Kathy: Dave: Kathy: Dave: Kathy: Nikolas: Dave: Nikolas: Dave: Kathy: Nikolas: Dave: Nikolas: Dave: Nikolas: Dave: Nikolas: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: Kathy: Dave: \u00a0<\/p>\n \u00a0<\/p>\n<\/div>\n Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here<\/a>. Thanks! We really appreciate it!<\/p>\n Interested in learning more about today\u2019s sponsors or becoming a BiggerPockets partner yourself? Email <\/em>[email\u00a0protected]<\/span><\/em><\/a>.<\/em><\/p>\n Note By BiggerPockets:<\/b> These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.<\/p>\n
Hello everyone and welcome to On The Market. Today I am joined by Kathy Fettke. Kathy, how\u2019s it going?<\/p>\n
Good. I\u2019m excited for this interview because I\u2019m a huge fan of Zonda. I watch all their stuff.<\/p>\n
Yeah. Well, since you\u2019re such a huge fan, why don\u2019t you tell everyone what Zonda is?<\/p>\n
Well, I did actually talk to our guest today before the recording, and it used to be Meyer\u2019s Research, and I interviewed those guys a bunch and would follow their information and they really just focus on new homes. They help new home builders figure out where to build their homes and where the market is and the demographics. And all that stuff is really important for investors too, so I figure if you\u2019re a new home builder, you have to know what\u2019s coming because it takes years and years to get those subdivisions up and running and make sure that you\u2019re not timing the market incorrectly.
So I\u2019ve always very much valued the John Burns of the world and the Myers Research because that\u2019s what they do and they help builders. So Myers Research worked with a data company called Zonda, and apparently they merged and now it\u2019s just Zonda. And I\u2019ve been a big fan since they merged and excited to actually talk to someone from within and see how they do what they do.<\/p>\n
Yeah, absolutely. I think it\u2019s super helpful to talk to these types of people because like you said, builders are sort of on the forefront of the economy and what\u2019s going on with demand and supply dynamics in almost every market. The other part of it, and the reason we\u2019re bringing these people on too with more frequency, is that as investors, the new home market is becoming more and more important. And I don\u2019t know, you operate in a different world than I do in real estate, but for the first 10 years of my investing career, I never really even paid attention to what was going on with new homes because it was just a small part. As an investor, I never really thought about buying new construction.
Now as of the last couple of years, new homes are taking up more and more of the total number of home sales. Normally it\u2019s like 10%, I\u2019ve heard different estimates that\u2019s between 15 and 30% now. Build to rent is a new thing that\u2019s becoming increasingly popular. So I\u2019ve personally tried to learn a lot more about the new home sale market and we\u2019re bringing on guests like Nikolas today to help everyone understand it because in addition to the economic understanding and knowledge, this also might play a bigger and bigger role in our respective portfolios for the next couple of years.<\/p>\n
Yeah, I have the opposite experience where when I started investing, I was already busy, but I wanted to buy in certain markets, not where I live, and I didn\u2019t know how to assemble a team and be able to buy homes at a discount and then have a renovation team, and it just was too much for me. So I thought, \u201cOh gosh, a new home, I don\u2019t have to do anything.\u201d And at the time, it was 2004 when it just made sense. So I actually started with new homes. Of course, when it all depends on the market, when the market collapsed and foreclosures were what was for sale, we pivoted, but we\u2019re pivoting again because it is so hard today to find foreclosures, to find existing inventory. So new homes is what you get, and fortunately you can negotiate with builders because they\u2019re business people, right, they need to make sales. So I think it\u2019s important for investors to not take that off the table and not think, \u201cGosh, if it\u2019s easy, I shouldn\u2019t do it.\u201d That doesn\u2019t make me a good investor.
The other thing we talked about on another episode is that you can get better insurance rates on a new home, and that matters a lot when you\u2019re doing your proforma. That matters so much today. So it can make a lot of sense today.<\/p>\n
Yeah, and you just hit on something, then we\u2019ll promise we\u2019ll bring Nikolas in. But you said something about them being business people, and I think that\u2019s something that not everyone immediately understands is that builders have to sell their homes. I mean they don\u2019t absolutely have to, but they are strongly incentivized to sell whatever they build. And unlike a home seller who maybe if they don\u2019t get their price, they\u2019re just like, \u201cYou know what? We\u2019re going to wait a year, or we\u2019re just going to pull it off the market. We\u2019re going to wait for more bids.\u201d Builders, that\u2019s not how their game works. They need to be constantly selling money to get cashflow in to pay off their debt, to build new properties, to acquire new land and their business in some ways, sort of like a flipper, is to sell these properties as quickly as possible.
And so we will definitely bring this up with Nikolas, but there\u2019s been a lot of incentives to help buyers purchase new homes, which is giving it a further advantage over existing home sales. So a lot to uncover here and I think we got the right person to help us understand it. It\u2019s Nikolas Scoolis from Zonda, and we\u2019re going to bring him in right after this break.
Nikolas Scoolis, welcome to On the Market. Thanks for being here.<\/p>\n
Thanks so much for having me. Excited to be here.<\/p>\n
Well, let\u2019s start by having you tell us a little bit about yourself and what you do at Zonda.<\/p>\n
Yeah, so my name\u2019s Nikolas Scoolis. I\u2019m the Manager of Housing Economics at Zonda, which is residential and some commercial real estate data provider as well as consultancy. We work with a lot of the big public builders as well as the investors behind those companies who are looking into invest in secondary and tertiary companies in housing, so like appliance providers, paint providers, etc. like that. My job is a lot of data analysis model building. I build our public facing indices as well as helping with consultancy projects.<\/p>\n
Awesome. Well, it sounds like you are the guy to talk to. Thank you again for joining us. So your team just released the new Home Monthly Update. Can you just tell us a little bit about this report, first of all, what you\u2019re tracking in it and what the most recent findings show?<\/p>\n
Yeah, for sure. So we released this, as it says, on the new home market, trying to cover all the primary points. So we talk about sales, pricing, supply, and we do so on a monthly basis because we at Zonda have in-house research team and we survey about somewhere between 60 to 70% of the entire new home market each month, and so we\u2019re able to kind of get really valuable insights that way. For example, the census, which publishes a version of new home sales, only surveys about 10% of the market. So our data collection is really comprehensive.
So this month what we\u2019re seeing is a little bit of maybe surprising if you\u2019re thinking about the housing market as a whole, but the new home market has been really, really strong over the last few months, and it\u2019s been really benefiting from the lack of supply on the resale side. Builders also have been able to take advantage of being more flexible, meaning they could bring products to market that buyers may be willing to compromise on because there\u2019s nothing available on the resale side, and they\u2019re also able to maybe build smaller and right size and bring that price down. So we\u2019re seeing really strong new home sales across the country right now. We\u2019re estimating about an annualized pace of about 720-ish, which is a relatively strong historical number, and it\u2019s up about 30 to 40% from where it was in the slowdown last year because last year rates were beginning to rise and buyers were beginning to pull back and there was maybe a little bit of panic, but recently we\u2019ve seen it kind of come full circle and seeing a lot of strength there.
At the same time, we are seeing prices continue to come down and a lot of that has to do with the historical affordability crunch we\u2019re seeing in the market. Obviously, rates just surpassed 7% last week on a national average for a 30-year fixed. That is high when you\u2019re considering where prices are. But we have data that splits the market into price thirds, so we\u2019re talking about entry level, move up, the high end market. And the bottom two price points, which are where most of the people are shopping across the country, are basically just flat year over year.<\/p>\n
Are you seeing that on a national basis with prices coming down or just in specific markets?<\/p>\n
No. Yeah, national basis. Some places across the country are actually seeing fully negative year-over-year changes, but obviously prices have appreciated so much over the past two or three years. Calling it negative is almost disingenuous, but we\u2019re seeing prices flatten out. And part of that is of course because of rates, but as I mentioned earlier, builders are building smaller and so they\u2019re trying to keep this top line number down, but we\u2019re still seeing price per square foot go up. So you\u2019re kind of having a trade-off there, but the top line number is what\u2019s important to buyers when they\u2019re trying to pencil out what they can afford on a monthly basis.<\/p>\n
Yeah, I was just going to ask that. It seems like over the past decade there\u2019s been under-building compared to household formation, but for builders obviously they want to make a profit and they weren\u2019t really making that profit with affordable housing, so they were building higher end. Would you say that that\u2019s true and is that changing?<\/p>\n
I think it\u2019s broad-based. Obviously you have builders who are targeting different price points. We are seeing the most appreciation on the high end still, but I think maybe there\u2019s less price sensitivity there, maybe less rate sensitivity, because a higher end buyer might be more inclined to pay cash or a larger down payment with a higher portion of the total sale price in cash. But we are seeing a lot of more affordable units come on, and I think that\u2019s just the nature of the beast of the market at the moment.<\/p>\n
Yeah, we just saw that Warren Buffet is investing in KB Homes and they typically build starter homes or more affordable homes, so definitely a push there to bring on more affordable housing.<\/p>\n
Definitely. Yep.<\/p>\n
Do you expect that trend to continue, Nikolas, that more builders are going to be able to build affordable homes profitably and will focus their efforts more in that area?<\/p>\n
Yeah, I think the opportunity is there for them because I think traditionally if you were a buyer, you would be more inclined to historically if you\u2019re looking for a cheaper house, look on the resale side. But over the last few years, because there\u2019s so many people who got new mortgages or refied and locked in a rate at two, two and a half, 3%, there\u2019s very little incentive for anybody to put their home on the market at the moment. And so that entry level price point or maybe a fixer upper or something like that that a first time buyer would be looking to pursue just doesn\u2019t have that option really at the moment. There\u2019s just nothing for sale on the existing side.
So builders have a really, really unique opportunity to dictate their own market, and so even if you look at maybe the square footages being built now, which are even under sub two on average in some markets, like 1500 square feet as an average unit size and some of these projects, that gives opportunity to these buyers to afford something. But it gives builders more margin to kind of push a higher price per square foot and still make good profits.<\/p>\n
Yeah, that makes sense. Kathy and I were actually talking earlier and we were chatting about how difficult it can be for builders to build affordably and make that still profitable. I\u2019m curious, because your survey has such a wide breadth of respondents, do you see that small builders are also able to build these affordable homes? Or is it really the large publicly traded ones that can achieve a level of scale that a lot of other types of builders cannot?<\/p>\n
Yeah, we\u2019re definitely seeing more success for the big publics, and a lot of that is due to how they can scale. As you said, they can buy more land in bulk, they can afford to hold onto land if they have to, but the privates still do have some flexibility because you can be building in the infill units where there isn\u2019t just much land available at all. So you can be doing these smaller scale developments but in more desirable areas and attracting very good dollar for that because of that.<\/p>\n
In the report, it was really shocking that some markets were seeing a pretty strong recovery and one of those was Sacramento and San Francisco. Explain that one.<\/p>\n
Well, I mean there is some strength there right now. Just again, we\u2019re going to deal with the lack of supply and builders being the primary option. Because if you\u2019re just looking broader nationally, we\u2019re only seeing about national pace of existing home sales, about 1.4 per month, even if you\u2019re factoring in the stronger new home numbers relative to that. Still, total housing sales across the country are down about 15 to 20%, so it\u2019s kind of hard to reconcile the two between the strength in the new home market and the weakness in the existing. But with these west coast markets primarily, they were hit so hard negatively last year that a lot of this has to do with the base effect. They were just so down a year ago that doing moderately well now looks extremely good. That\u2019s what we\u2019re seeing a lot. The top five markets for us among major metros were all west coast and that\u2019s because of that base effect.<\/p>\n
San Francisco in particular, there\u2019s not a lot of room to build, you\u2019ll be building on the water. I do have a niece who\u2019s a real estate agent there, and she said she has people on a wait list, but there\u2019s just nothing available. And when something comes up, it sells immediately, so fascinating.<\/p>\n
Really tricky stuff for a buyer.<\/p>\n
I am curious, have you seen Nikolas, the demographics of the buyers change? I know you mostly survey the builders, but are the type of people who are attracted to new construction relative to existing homes changing given these inventory dynamics?<\/p>\n
Yes and no. Obviously, the primary buyers historically are the people looking to start a family who need more space, want to commit to a payment on their own schedule rather than being subject to whatever their landlord changes their rent to. But as we know with the pandemic and stuff, we saw a lot of retirees looking to push into smaller units as well to be closer to their family. We call it baby chasing, moving where their kids are having kids, and we\u2019re still seeing that widespread in some of these hotspot markets.
And from a very slight personal anecdotal experience, I was pursuing with my girlfriend out here in Southern California, a very small two, three bedroom, single level home, and every other bidder on that house was a recent retiree looking to downsize from their old home into this smaller home.<\/p>\n
Interesting.<\/p>\n
So I think it\u2019s kind of like a weird situation because I don\u2019t think a lot of these people who are looking to move into these smaller homes as a baby boomer or Gen X are going to then further sell their home. I think because their rates can be so low in their current holdings, they\u2019re just holding onto it as a rental unit, and then that\u2019s another unit that comes off the market and further hinders the supply problem.<\/p>\n
Yeah. Also if they do, they probably have a lot of equity from a previous home that they can outbid first time home buyers?<\/p>\n
We saw that a lot over the last two to three years. People, especially from California where homes are obviously a lot more expensive than Texas or places in Florida or Raleigh and Charlotte have been really big hotspots, you can just basically roll that equity into a rate free purchase if you choose to.<\/p>\n
Yeah, BiggerPockets just did an article on baby boomers and I believe I saw that baby boomers hold 50% of the wealth and they\u2019re just a quarter percent of the population or something like that, and they have a lot of cash. I would hope so after 30, 40 years of working that you\u2019ve got some cash built up. So this market doesn\u2019t maybe scare them as much. They\u2019re looking more for lifestyle. Sorry, they\u2019re beating you out on [inaudible].<\/p>\n
I know. It hurts me, but I mean good for them I guess.<\/p>\n
So where are you seeing the best incentives and what kinds? I mean I know that a lot of builders are paying to buy rates down, paying points so that buyers can afford the property with a lower rate. Are you seeing that type of incentive or like you said at building a smaller house that might be more affordable?<\/p>\n
Yeah, that\u2019s a really good question because rate buy downs have been super, super important. And that\u2019s another thing the new home side has over the existing side is that builders are willing to work with buyers to get the cashflow going. And so interest rate buy downs, they\u2019re not like a new idea, but those share of projects that we\u2019re doing that over two years ago compared to now has just risen dramatically. We\u2019re currently seeing across the country about 60% of all the projects offer some kind of incentive, and the most commonly that we\u2019re hearing are interest rate buy downs.
And that\u2019s an interesting topic as well because obviously that helps with the immediate affordability relief, but as interest rates keep going higher, it\u2019s kind of a question of how long will that strategy continue to attract buyers? Because if there\u2019s not any signs that rates are coming down in the year or two years, will that still continue to move the needle for people? We\u2019ll have to see. But before that, we would see incentives like closing cost coverages done by the builders or appliances included or something like that.<\/p>\n
And do you expect those incentives to continue even though \u2026 It\u2019s sort of this weird dichotomy where builders seem to be in this position of strength, but they\u2019re also offering a lot of incentives. So do you think those incentives might be going away?<\/p>\n
I think, yeah, if builders have their way, they\u2019ll be dwindling down sooner rather than later. But even though builders\u2019 biggest competition is the resale market, they are still competing with each other. So it is still a marketing expense to say, \u201cWhy would you go for that home and that builder\u2019s project when you can come to ours?\u201d We\u2019ll do this little bit to move you over the line.\u201d<\/p>\n
Yeah, builders don\u2019t want to cannibalize themselves. They\u2019d rather do an incentive than a price reduction every day because then they\u2019ve just made a new comp that\u2019s not good for them.<\/p>\n
100%.<\/p>\n
But it seems like it used to be, \u201cHey, you\u2019re going to get these gorgeous new countertops or this upgrade. That\u2019ll get you to pay this price,\u201d but now it\u2019s a better deal to get a lower interest rate. Like I\u2019ve said way too many times, I just got a four and three-quarter percent interest rate because the buyer was willing to pay a bunch of points and it really makes the numbers work from an investor perspective. Do you have any data on how many of these new homes are being sold to investors looking to rent them versus first-time home buyers or buyers?<\/p>\n
Not exactly. It\u2019s something we\u2019re pursuing to look into on a larger scale. We\u2019re trying to isolate in the deeds which are investors, but there\u2019s just a lot of gray area in facts because people do \u2026 The best way to isolate it out in the deed itself is kind of looking at mailing addresses, but there\u2019s still a bunch of gray area. But obviously we do know investor activity is extremely high, especially from an institutional standpoint, and that is somewhat concerning if you\u2019re a buyer. You\u2019re competing with not only people with big pockets, you\u2019re competing with companies with gigantic amount of cash on hand. It\u2019s a little scary.<\/p>\n
And is that just true across the board that institutional investors are participating more in the new home market?<\/p>\n
It definitely varies market to market. It has to obviously make sense as a rental for a lot of these places depending on what price they\u2019re paying. So you\u2019re looking at a lot of activity in the more affordable places where there\u2019s room for rental rates to increase at a higher rate. And then obviously on the further end of that, you have full projects that are build to rent. They\u2019re building these projects themselves to just rent them themselves and operate as a landlord, which is obviously a very complicated process because the land price has to be exactly right for it to work, but it does give these builders ad out also. If they need to liquidate, they also have the price appreciation they\u2019ve gained in value of their rental units. So it\u2019s kind of a very interesting prospect, but as I said, it has to work exactly right in terms of land value for it to really make sense.<\/p>\n
Well, just to clarify, when we talk about your survey and the data, does that include build to rent as well?<\/p>\n
No, this is new for sale.<\/p>\n
Okay. Okay. So that\u2019s just a different class of sale?<\/p>\n
Yeah, completely different. We do work on a lot of build to rent projects, but these are for sale units.<\/p>\n
So we\u2019re seeing builder confidence has been up, but I think it just declined a little bit recently because of the recent mortgage rate increases. Do you see that trend continuing of builder confidence versus a decline in the future?<\/p>\n
Yeah, I think you\u2019re right. I think it recently declined to about 50, which if I\u2019m recalling reading it right, I think it was declined to 50 and 50 is the marker of how they indicate positive confidence or negative confidence. So it\u2019s right on the border right now and I think it\u2019s a cautious confidence. There\u2019s so many dynamics that are good for them, but that price and affordability crunch is still just weighing down on their heads. And especially if rates keep going up, at some point there\u2019s just diminishing returns in what buyers can afford.
So I think it\u2019s kind of weighing those two aspects because if you look at the supply, look at what was happening in the resale market, there\u2019s so much going well for them, but they still have to make sense for people to buy it. They still have to be able to afford it. And so it\u2019s just tricky. It\u2019s a very weird environment I have to say.<\/p>\n
It is tricky. I mean I syndicate and we have a development just outside of Reno, and we were so excited because we\u2019re building affordable housing there, and sales came to a stop. It was a shock. Of course, Reno may have got hit harder than other markets, but starting to pick up again. But it is, it\u2019s a crapshoot. You don\u2019t know. We\u2019re also building \u201caffordable\u201d in Utah, but it\u2019s still expensive for most people, affordable for the area maybe. How do you build what would be considered affordable today and how can you build at that price and make a profit? It\u2019s tough.<\/p>\n
Yep, super tricky.<\/p>\n
One of the things I keep hearing about the new home market is that builders are building more, and this is going to help us alleviate a national housing shortage that depending on who you ask is somewhere between three and seven million homes. But when you look historically, we\u2019re not really at the height of building, and obviously new homes make up a small portion of total inventory. And so I\u2019m just curious, do you believe that there\u2019s any hope that building is going to pick up to a level where it would actually help increase overall housing supply?<\/p>\n
I definitely don\u2019t think they can bridge the gap if resale supply is this little as well. New home market is traditionally about 10% of sales. It ranges obviously. Currently, it\u2019s about 15% and that is the highest we\u2019ve seen in a very long time. And like I said, we\u2019re still down when you\u2019re factoring in total market sales about 20% from where we were last year. So with the resale market and the resale supply being so low, currently the new home inventory of standing inventory makes up about 30%, which is way up. And we\u2019re still so under-supplied, new home building would have to increase to such a dramatic level while resale supply is this low that I just don\u2019t see that being feasible.
I think there are gains they can make, it doesn\u2019t have to be talking in absolute, like any supply improvement is good supply improvement if you\u2019re talking about from the buyer\u2019s perspective. But bridging that gap on the new home side alone is just I don\u2019t see that happening. There\u2019s got to be some kind of incentive to get the people with the low rates to want to move or want to sell and trade in those loan mortgages. And that\u2019s the impossible conversation I think is how do you do that?<\/p>\n
What communities, what areas, are seeing more activity in subdivisions? I mean I know subdivisions kind of went down, the count went down, because I think builders didn\u2019t want to take that kind of risk. But are we still seeing areas in the country where builders are coming in, creating big communities? And if so, where?<\/p>\n
Yeah, so the places that we\u2019ve seen the most gain on a year-over-year basis are Austin. Austin\u2019s been a weird market as well because it was so dynamically out of this world hot, and now it\u2019s slowing. It\u2019s still seeing sales, but obviously uncomparable to what we saw over the last couple of years there. Riverside, there\u2019s land there, and also I think a lot of the buildings were building for demand that people were seeing early in the pandemic when they were willing to kind of move out of the higher cost lifestyle markets because of remote work. And then Minneapolis, but all three of those \u2026 Or sorry, bar Minneapolis, but Austin and Riverside are still down double digits compared to where they were prior to the pandemic in terms of supply. So we\u2019re seeing gains, it\u2019s just still lower than where we started.<\/p>\n
That\u2019s super interesting. Are there any places where builders are fleeing?<\/p>\n
Fleeing is a good question. I\u2019m not exactly sure pulling out completely. I think there are markets that are a little bit trickier. Of course the Bay Area is tricky in how they\u2019re going to manage their employment base. Are tech company is going to be able to bring all their employers back? And if they do, obviously that\u2019s very good for housing because those incomes are so high and people will be moving and flowing into it. I think generally there\u2019s room for a builder in any market. It depends on your execution and how you are marketing your product and what you\u2019re bringing and delivering because I think the execution is what is most important.<\/p>\n
And even in smaller markets like the tertiary ones, let\u2019s just say, I don\u2019t know, Columbus or Cincinnati or Huntsville or some of these smaller markets, are you seeing builder activity in those areas?<\/p>\n
That\u2019s actually a good point. Boise is one that stands out as being a little scary just because there was so much inflow and so much slowing down in terms of building there. And anytime I look at the numbers on how much things have changed over the last bit, Boise is always a standout of something that\u2019s seeing crazy changes.<\/p>\n
Yeah. Nothing against Boise, but they\u2019ve certainly been hit hard, not just in new homes but in existing home sales as well.<\/p>\n
But if I were a betting gal, I would say it\u2019s going to come back because that money\u2019s coming from California and you\u2019ve still got people retiring who don\u2019t want to do it in such an expensive market and they\u2019re going to go to a beautiful place like Boise. So it\u2019ll probably come back, but it\u2019s going to take a while for that.<\/p>\n
Yeah, relative affordability is one of the biggest drivers there are, just how much farther your dollar goes.<\/p>\n
Yeah.<\/p>\n
Yes, relative being a very key point because people, they look at Boise and they\u2019re like, \u201cIt\u2019s not affordable,\u201d and is true for the majority of people. But to Kathy\u2019s point, if you\u2019re a wealthy Californian, maybe it\u2019s extremely affordable.<\/p>\n
Relative is the key for sure.<\/p>\n
Or even not wealthy. I mean my daughter is just starting her career and the rents are $4,000 or $5,000. It\u2019s tough.<\/p>\n
In California?<\/p>\n
Oh, yeah. Yeah, and California is so going anywhere else, and she\u2019s looking and that would break my heart. I want her near me, but it\u2019s not just wealthy who live in California, it\u2019s people trying to survive with rents that are just ridiculous. And at some point, you just give up and just go away. You\u2019re just going to go somewhere where it makes sense.<\/p>\n
That\u2019s the current battle we\u2019re living. As I said, we were trying to pursue a house when we were getting quoted rates in 2.8, and obviously the prices are high, but we didn\u2019t find something that worked out or we got outbid. So we\u2019re in this weird flux point. We can\u2019t see ourselves leaving California, but our rent is so under market at the moment, so we\u2019re kind of almost locked into a rental unit, which is extremely bizarre because anywhere we want, if we want to get a different rental unit, it\u2019s like an increase of $1,000 a month, which we can\u2019t justify.<\/p>\n
That\u2019s crazy. Yeah.<\/p>\n
We could do it, it\u2019s just the trade-off isn\u2019t worth it. And then so we\u2019re saving for a house and there\u2019s nothing available. It\u2019s like-<\/p>\n
It\u2019s tough.<\/p>\n
It\u2019s very tough for buyers out there.<\/p>\n
Well, that\u2019s why you\u2019ve got to invest in property and then you could live in California and rent, but own property elsewhere. That\u2019s been what I\u2019m encouraging people to do for so long because it just doesn\u2019t make sense.<\/p>\n
That\u2019s good advice.<\/p>\n
Yeah, especially at these rates to own in California. It\u2019s tough for a starter home or a growing family.<\/p>\n
All right, well Nikolas, I\u2019m curious, is there anything else you and your team are working on or studying that you think our audience of small to medium-sized real estate investors should know about?<\/p>\n
The other big bit of work we\u2019ve been doing is trying to capture how much square footage is changing, but we kind of talked about the right sizing that\u2019s building smaller, just being able to keep that top line number down. And it really is dramatic how much square footages are declining. We\u2019re seeing basically every market around the country end up being smaller and smaller by average listed unit size. And it\u2019s something I think will keep happening until there\u2019s some kind of pullback in demand because it\u2019s just too small, but I expect that trend to continue, so there\u2019s going to be even more premium on bigger houses on the existing side I think.<\/p>\n
Well, I just want to thank you guys so much because you\u2019ve been offering so much information and data ever since it seems like you really went hard during the pandemic trying to help the rest of us understand what in the world was happening. And you\u2019ve been really accurate, so thank you. Thank you for that. And with that said, what are your thoughts about the coming years and where things are headed? That\u2019s a big question.<\/p>\n
Like I said, especially for builders at least because that\u2019s so much what skews our viewpoint, I think it is cautious optimism. I think they\u2019re in a good position with both supply as well as demographics pushing demand forward, but just got to be nimble and flexible and especially on that affordability side, there\u2019s just always going to be that weight pushing back down on you. So we got really good, kind of not good on the affordability side, but I think they\u2019re in a good position because I think that resale supply side is just a problem that\u2019s not going to be alleviated in the near term. I think the lock-in effect is just so brutal.<\/p>\n
Are you seeing any government assistance or incentives for affordable housing? I thought I saw something recently with the Biden administration trying to get builders to build affordable.<\/p>\n
Yeah, we\u2019re seeing some more activity in terms of altered zoning ideas. So it\u2019s basically being able to build multifamily in single family areas. And that\u2019s obviously an idea I am pro of, but how much of an impact it will have in terms of alleviating, I\u2019m not sure because typically the multifamily person is a different demand segment than the person looking to buy a single family house. Maybe those are just compromises that have to be made on the buyer side, but that\u2019s something we\u2019re seeing for sure.
One more thing to keep in mind in the near term is how student loan payments coming back affects the demand side because that\u2019s been such a good tailwind for the housing market for the last two plus years. So with those payments coming back, I believe next month, how that impacts demand because a lot of the underlying data, it\u2019s still really strong despite what you hear a lot of people experiencing in the economy. So we\u2019ll see how that has impacts, if any.<\/p>\n
And then what about technology that can make the process cheaper? I am going to look at a 3D printed community in Palm Springs on my way to a concert.<\/p>\n
Oh, cool.<\/p>\n
Yeah, it\u2019s going to be really cool. I\u2019m going to get some footage for you guys, for BiggerPockets.<\/p>\n
Awesome.<\/p>\n
But it\u2019s not cheap. I thought, \u201cOh wow, this is a great way,\u201d but it\u2019s like these homes are in the million dollar range that is not helping. Granted, maybe that\u2019s cheap for California, but yeah, what kind of technologies might be coming around or that builders are looking into that could make it more affordable to build?<\/p>\n
What you\u2019re talking about is something builders have been very interested in for a long time. Basically, since I\u2019ve been in the industry, we\u2019ve been researching it, talking about it. It just is still a little far away because it really has to make the numbers work. If I don\u2019t know you want to call it manmade housing is still cheaper and there isn\u2019t a big price drop, then it\u2019s not going to make sense for builders to fully invest in it. But if it brings prices down, then that\u2019s something they would lean into for sure. It just seems like it\u2019s a really interesting cool idea, but not quite ready for a large scale use yet. Maybe it\u2019s a case by case development basis, like it makes sense for some, maybe not for others, maybe depending on the labor availability, who knows? But it is interesting. I think it\u2019s fascinating how they\u2019re able to do it. It\u2019s really cool.<\/p>\n
It\u2019s super cool. I hope it gets scaled up. I think right now it\u2019s just too small scale in one-off communities, individual lots. But if they started applying this at a large scale, maybe it could help bring down costs. Let\u2019s hope.<\/p>\n
Yeah, let\u2019s hope. I hope so.<\/p>\n
Kathy, you got to get us some footage of that. I\u2019m very curious. It\u2019s a whole community you said?<\/p>\n
Yeah, it\u2019s a whole community. It\u2019s in the desert. It\u2019s built in a way that it\u2019s fire resistant and you don\u2019t need as much AC because it cools itself. It\u2019s really cool. I will definitely be there. I\u2019m already meeting with the agents there, and we were so excited about it until I saw the price tag. I\u2019m like, \u201cThis isn\u2019t helping anyone. It\u2019s still so expensive.\u201d And same thing, Nikolas, the person who presented to me lives in Southern California and can\u2019t afford to own a property there, so was excited about this possibility, but it\u2019s still expensive.<\/p>\n
One thing they do really well though that I\u2019ve seen is the time those developments take, they can be really fast, which is interesting from a builder\u2019s perspective if you\u2019re trying to target a certain market really quickly because it gives them that speed. But again, pricing is still an issue.<\/p>\n
All right, Nikolas, well, thank you so much for joining us. We appreciate all the work you and your team have done and coming here to share your insights with us.<\/p>\n
Thank you so much for having me. I enjoyed it.<\/p>\n
And if people want to check out your work or learn more about you, where should they do that?<\/p>\n
Zondahome.com. We publish blog features of the more unique research we\u2019re doing there consistently. And then obviously we have the New Home Market Update, which we\u2019ll release monthly, that has all these stats that can be sent to your email.<\/p>\n
All right, great. Well, thanks again, Nikolas.<\/p>\n
Thank you so much.<\/p>\n
All right, another big thanks to Nikolas for joining us for this episode. I learned a lot. Kathy, what were some of your highlights from the interview?<\/p>\n
Oh, gosh, just that it\u2019s fascinating that some areas are having a comeback bigger than I thought, and that I think part of that report in certain places, home sales are more robust than they were in 2019, which is a good year to compare things to. So look, this seems very positive from my perspective. I left the interview feeling positive.<\/p>\n
Good. Well, you\u2019re always the most positive of all of us.<\/p>\n
Oh, why not?<\/p>\n
I\u2019m always glad when you\u2019re feeling good, but I agree. I think in general, I don\u2019t have a good sense like anyone of what\u2019s going to happen six months from now or a year from now. But in the next two or three years, I feel pretty good about the way things are heading. What happens in the short term? I don\u2019t know. I think the one thing that I was a little sad about is just, not from an investment perspective, it\u2019s just like even if builders build a lot, it\u2019s not really going to alleviate the housing shortage problems. And so I really have a hard time understanding how we fix that. If even an uptick in building improved economics for builders we\u2019re seeing right now is not going to get us to that point, I just don\u2019t really know what will.<\/p>\n
Yeah, I know California tried to bring in some laws where a new builder, I don\u2019t know if it ever passed even, but that institutional investors and investors would have to wait like 30 days, like you got to let the open market and the first time buyer get in first. There\u2019s ways. Do you charge? I know other countries charge investors higher property taxes and higher acquisition. It\u2019s harder for investors in other countries, but here it\u2019s frustrating because families should come first. And I don\u2019t know how we do that here, but I could tell you from a builder perspective, it makes no sense to build affordable housing. We are getting killed on that in our projects. So why would you go out and do it again if you\u2019re not making money? It\u2019s hard. It\u2019s really, really hard. So there has to be some kind of government assistance or incentive to make that happen.<\/p>\n
Yeah, it\u2019s a really tough situation. Here in Amsterdam, they make it more difficult for investors. It\u2019s an interesting system. Here, you pay tax when you buy actually, which is kind of interesting. It\u2019s 2% for a home buyer, it\u2019s 8% for an investor. So it\u2019s a very significant increase. And this went into effect since I\u2019ve been living here, and what you see is the percentage of rental properties has plummeted, which has actually been decent for the housing market. It\u2019s still up a lot, but it\u2019s moderated a little bit. But for renters, like myself, I rent in Amsterdam. It\u2019s been a huge problem. And so rather than new home sales being unaffordable, rent just becomes unaffordable. And in my mind, the only solution to any of these things is more supply. There could be these interventions that might put a little bit of a bandaid on something, but I don\u2019t know. They got to figure out a way to get these builders to just build nonstop.<\/p>\n
Just incentives to builders to create affordable housing, that\u2019s what needs to happen.<\/p>\n
Yeah. Well, we\u2019ll see what\u2019s going on. But Kathy, thank you as always for your time and for your insights. We appreciate you. If people want to connect with you, where should they do that?<\/p>\n
You can go to realwealth.com, that\u2019s our company, or on Instagram just Kathy Fettke. And I think there\u2019s just one of them, just me.<\/p>\n
Good, good. No imposters trying to sell you crypto.<\/p>\n
Right. They might still try, but trust me, it won\u2019t be me.<\/p>\n
And I am at The Data Deli, there does seem to be some imposters, but I have a blue check now. I\u2019m very excited about that.<\/p>\n
Yay.<\/p>\n
So just The Data Deli. Well, thank you all so much for listening. We appreciate all of you and we\u2019ll see you for the next episode of On The Market.
On The Market is created by me, Dave Meyer, and Kailyn Bennett, produced by Kailyn Bennett, editing by Joel Esparza and Onyx Media, research by Puja Gendal, copywriting by Nate Weintraub. And a very special thanks to the entire BiggerPockets team. The content on the show On The Market are opinions only. All listeners should independently verify data points, opinions, and investment strategies.<\/p>\n