Single family homes on their way out?!?!

Is it time to "accept the single-family home is outdated?"  Farhod Manjoo's pronouncement might seem a rather over-the-top reaction to the failure of SB50 for those outside the SF Bay area, but with situations like 2:30 AM shuttles out of Salida for morning shifts at the Tesla plant or Google shuttles providing a total of 4 million rides annually across an area the size of the New York City to Philadelphia corridor, I'd hesitate before calling him out as being histrionic.

Disrupting real estate brokering

Philadelphia-based Houwzer, a tech-enabled real estate brokerage & home services startup, raises $9.5 million from Edison Partners to fund geographic expansion in the Mid-Atlantic region.  Ventures seeking to disrupt the real estate brokerage business, which also include Fly Homes, Redfin and REX, have come a long way from the days when YHD Foxtons tried to reboot the space with low fees, leveraging technology for product and experience differentiation.  The challenge they face, is that these plays, as they internalize and optimize large portions of incumbent brokering capabilities, exist in the middle between those who seek to:

1. Leverage readily available external antecedents, but exert substantial control (e.g., Homelight) on one end; and
2.  Fully disrupt the incumbent model by inserting the company as counter-party into the real estate sell/buy transaction.(e.g., OpenDoor, Knock, Offerpad) on the other.

Is this middle defensible ground or is this no-man's land?

Is the US prepared for the Coronavirus?

"In 2018, the Trump administration fired the government’s entire pandemic response chain of command, including the White House management infrastructure.” (Foreign Policy)

According to Foreign Policy, the actions taken to essentially gut the reforms to epidemic response made by the Obama administration in the aftermath of the faults made apparent by our handling of the 2014 Ebola outbreak will likely impair our ability to react to the emerging likely pandemic in a coordinated manner.  These actions have included:

1. Reducing $15 billion in national health spending and cutting the global disease-fighting operational budgets of the CDC, NSC, DHS, and HHS.
2. Eliminating the $30 million Complex Crises Fund.
3. Ordering the shutdown of the NSC’s entire global health security unit.  Pressured DHS epidemic team to resign.  “Neither the NSC nor DHS epidemic teams have been replaced.”
4. Cutting the global health section of the CDC so “that much of its staff was laid off and the number of countries it was working in was reduced from 49 to merely 10.”

Moreover, the US Agency for International Development (US AID) has come under repeated fire from both the White House and Secretary of State Mike Pompeo. And while Congress has so far managed to block Trump administration plans to cut the US Public Health Service Commissioned Corps by 40%, the “disease-fighting cadres have steadily eroded as retiring officers go unreplaced.”

The administration’s actions on this front sound distressingly familiar, a government led by the “uninterested,” as chronicled by Michael Lewis’s book, The Fifth Risk.

...Or one where political machinations are primary drivers of action, as demonstrated by the imbroglio over the phantom Alabama leg of Hurricane Dorian.

Facts about our housing supply explain high rents and home prices

Urban Institute's latest dissection of the US residential housing sector indicates that, essentially, we’re not creating enough housing stock and what is being created costs evermore to build and tends not to be the right type of stock.

California falls short again (in housing reform)

As a follow-up to a recent post, California's Senate Bill 50, which would "dramatically increase homebuilding," falls short for the third year in the row, “opposed by state senators who said the measure took too much power away from local governments and failed to sufficiently address low-income housing needs.”  In other words, Scott Wiener's bill fell victim to a toxic stew of regulatory capture by entrenched interests and idealists making good the enemy of great.

Trust but verify - Coronavirus edition

The latest epidemic coming out of China has many highlighting the deadly inefficiencies of top-down authoritarian regimes.  As Nicholas Kristof puts it in his recent piece, "Dictators often make poor decisions because they don’t get accurate information."

Into this breach of trust... "BlueDot Inc a Toronto startup whose AI-driven health monitoring platform analyzes billions of data points... alerted its clients to the (coronavirus) outbreak on Dec. 31, well ahead of notifications from the World Health Organization and US Centers for Disease Control and Prevention"

How housing became the world’s biggest asset class

The Economist has been on a tear with regards to housing, the latest being a recent history of this asset class.

Some eye-opening nuggets...

• "median American rent payment rose 61% in real terms between 1960 and 2016 while the median renter’s income grew by 5%"
• "In 1940-2000 mortgage credit as a share of gdp across the rich world more than doubled"
• "the rate of housing construction in the rich world is half what it was in the 1960s"

Rebuilding trust...

At a time when many are content with calling balls and strikes, Peter Kraus and Gregg Schoenberg are masters of delving into the second and subsequent order impacts of what transpires on the field of play, as evidenced by Peter's latest edition in his podcast series "Elephant in the Room" where the duo explore, among other things, trust and transparency in the financial markets, as well as fintech, ESG and asset management.

The Mandate of Heaven

The inimitable Charles Krauthammer, burdened by liberal enlightenment thinking, got China way wrong by inserting a phantom “People” element into “The Mandate of Heaven.” Three decades on, we may be about to see the sons of the Yellow Emperor contend with the very real “Heaven” of that term of art.

Trajan Langdon... math major

Peeling the onion on ATTOM's latest pronouncement on the affordability of buying vs. renting

While it’s nice that buying is more affordable than renting in 53% of US counties, a population-weighted view gives a dramatically different story.  Buying wins in 31% of counties with over populations of over 500k and only 16% in counties where populations cross the 1 million threshold.

Average US home seller profits hits another new high?

Average US home seller profits in 2019 hit record high...  A happy headline indeed, but also demonstration of the Rorschach test of real estate stats at the national level.

Home ownership tenure of sellers in Q4 2019 averaged 8.21 years, the highest since Q1 2000, roughly coinciding with the nearly 60% national home price index appreciation since Q1 2011, demonstrating the importance of good timing.

Moreover, the top 5 tenures were all counties in Connecticut (12.25 years+), a state where overall sale prices remain below the 2007 peak.

China's soft power projection...

China’s $270 billion in “diplomacy spending” since 2000 (source: Visual Capitalist)

Is home ownership really "The West's Biggest Economic Policy Mistake?"

“Far from shoring up capitalism, housing policies have made the system unsafe, inefficient and unfair.” The Economist makes the case that the West’s “obsession with home ownership” is its “biggest economic policy mistake,” undermining growth, fairness and public faith in capitalism.

Making California livable again

According to The Atlantic, "California Senate Bill 50, winding its way through the state legislature again this month, could generate tens of thousands of new jobs and billions of dollars of new investment, reshaping the geography of the biggest state and solving a large chunk of the cost-of-living crisis the Trump administration has assiduously avoided addressing by, essentially, forcing California communities to allow more construction."

 "Based on the housing-unit-to-population ratio in similarly wealthy and urban states, such as New York and New Jersey, California is short 2 million to 3.5 million housing units. (California has 358 homes per 1,000 people, whereas New York and New Jersey each have more than 400.) Right now, the state ranks 49th in units per capita, behind only Utah."

The hidden costs of taking cash out of your home

Nearly 60% of cash-out refinancings in 2018 came with higher interest rates (WSJ)

The recent WSJ article on American consumers refinancing at higher rates to take equity out of their home is yet another indication of the product-market mismatch in residential real estate financing.

Paul Thompson, the particular consumer in the piece, replaced his five year-old 4% mortgage with a 4.625% mortgage, taking out $30,000 in the process.  Some back-of-the-envelope calculation show that Paul will be paying $146,530 over the life of the new loan for the opportunity to take out $30,000 in equity.  I didn't account for time value of money or mortgage interest deductibility, but it seems that Paul will need a period of macroeconomic hyperinflation for this to make sense financially.

Showing my work (assumptions)

• He initially took out $350,000 for 30 years; total payments would have been $601,543
• Assuming 60 periods in, he would have paid down $33,433 in principal and $66,824 in interest (totaling $100,257)
• Since he took out $30,000 in equity, I'm further assuming the new mortgage balance will be $350,000
• He will have total principal and interest payments of $647,816 for his new loan.
• [New Loan: $647,816] - ([Old Loan: $601,543] - [Old Loan Paid Down: $100,257]) = $146,530

A little perspective please (when it comes to Millennial housing preferences)

Do half of all millennial home buyers really view “two story entry foyers” as “essential” or “desirable” as detailed in "What Home Buyers Really Want (2019 Edition)" published by the National Association of Home Builders.   While I applaud NAHB’s efforts to better understand the generation, this is a bit much, especially when a longitudinal comparison shows only a fifth of the boomer set as having the same preference.

Is this manifestation of the the false sense of intimacy conveyed by the cohort’s preferred methods of discovery (Zillow, HGTV...), combined with their relatively late start into the realities of home ownership?  One may deem this the “Mrs. Fletcher” conundrum, where the digital proxy, however authentic-seeming, is far from real.

Might the solution be to help home buyers better appreciate both the qualitative and quantitative value drivers that go into housing to understand the tradeoffs inherent in home ownership?

Will iBuyers love LA?

Leading iBuyers Opendoor, Redfin and Zillow are all entering Los Angeles, the second-largest housing market in the US.  Will their valuation algorithms be up to the challenges of this significantly more heterogenous and expensive real estate market?  Tune in...

Areas of highest millennial concentration seeing lower levels of home building

NAHB reports that the 25% of counties with highest millennial concentration saw construction growth rates for single-family and multifamily home building at generally lower rates "than the remaining 75% of counties. These statistics point to a growing geographic mismatch between younger households with expanding housing demand and where construction is expanding.

Blockchain as Liquid-Plumr for financial market pipes

WSJ reports... “That two-day delay comes with various costs. Banks collectively set aside tens of billions of dollars in capital to cover the risk that firms elsewhere in DTCC’s network will fail before the trades settle.

There are also separate systems at each big bank, as well as at DTCC itself, that track what different market participants are expected to pay or deliver at settlement time. Bankers say this is inefficient and results in errors when systems disagree with each other.

‘We are constantly reconciling that data,’ said Jeffrey Rosen, a New York-based managing director at Société Générale. ‘That is hugely expensive. While we’ve built tools to do it efficiently, it would be better not to do it.’”