In this episode of the Top of Mind podcast, Mike Simonsen is joined by Conor Sen, a Bloomberg Opinion columnist and Founder of Peachtree Creek Investments, to talk about the impacts of global financial markets on real estate. They talk about the challenges housing markets face in delivering homes, how interest rates are influencing home prices, and marketplace trends people should focus on and consider.
Conor Sen is a Bloomberg Opinion columnist who writes about financial markets, the economy, housing, cities, and demographics. Conor is also the Founder of Peachtree Creek Investments and has more than a decade of experience in portfolio management and risk management. Conor has broad economic and financial market expertise and offers insights into what’s happening in all the financial markets. He’s been a contributor to the Atlantic and Business Insider and resides in Atlanta.
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Intro 0:02
Welcome to Top of Mind, the show where we talk to real estate industry insiders and experts about the biggest trends impacting the market today. Enjoy the show.
Mike Simonsen 0:13
Mike Simonsen here. Thanks for joining me today. Welcome to the Top of Mind podcast. This is where I talk to the smartest leaders, thinkers, doers in real estate, industry and related industries. For a couple years now, we've been sharing the latest market data every week in our weekly Altos Research video series. With the new Top of Mind podcast, we're looking to add some context to the discussion about what's happening in the market from leaders and others in the industry, so beyond the data. Each week, Altos Research tracks every home for sale in the country, all the pricing, all the supply and demand. We analyze all that data and all the changes in that data and make it available to you before you see it in the traditional channels. So you can visit altosresearch.com for more details on how we do that data. But without further ado, let me introduce our guest today. Connor Sen is a Bloomberg Opinion Columnist who writes about financial markets, the economy, housing, cities, and demographics. He's also the founder of Peachtree Creek Investments and has more than a decade of experience in portfolio management and risk management. I often look to Conor for his broad economic and financial market expertise and his insights into the big picture of what's happening in all the financial markets. Connor lives in Atlanta, which is one of the hottest real estate markets in the country right now. He writes about Atlanta. So we're going to talk about Atlanta today, too. So welcome, Connor. Thank you for joining.
Conor Sen 1:52
Thanks, Mike. We've been talking to each other for I think 15 years was the first email I sent to you. So it's great to finally chat in person for over the internet.
Mike Simonsen 2:01
That's right. It's really great. I think when we were just starting Altos Research a long time ago. You're one of the first people on Twitter to see what we were doing and respond to it.
Conor Sen 2:14
Yeah, well, it's fascinating to me, as somebody who loves working with data, that mid-2000s period was when we brought a lot of data and democratized data in the real estate market. And so I think your work has really helped me to bring that data to the public and allow practitioners like me access to it.
Mike Simonsen 2:32
That's awesome. So we get to talk a lot about the data today. But first, tell us about you. Tell us about your background, about Peachtree Creek and how you ended up writing for Bloomberg.
Conor Sen 2:45
Sure. So when I first emailed you that was when I had just moved to San Francisco to start working for a hedge funds, I forget probably on a blog or something that Altos was this data organization that had housing data. And I was at this hedge fund really interesting what was going on in the housing market in late 2005. And so, thought that Altos could help me with that. And so my background is in computer science and economics. That's what I studied in college. And I sort of love the intersection of the two of those. And I think housing and data really set in sort of both worlds. And so I was in San Francisco for about five years from 2005, 2010 working in risk management, housing market, of course, was a huge part of that during that period. And then leaving the tech world as well, just being in San Francisco sort of got burned out living there had a breakup and decided to move to Atlanta, where I had a couple friends and worked for a tech startup here for a little bit and then eventually went out on my own. I sort of wanted to flex those hedge fund muscles, but without the crazy schedule that working for a big hedge fund entails. And Twitter was a great way to stay engaged in that role as well being in Atlanta and not in an office with a lot of other similar-minded people. And so slowly but surely you grow following, you talk to people, you learn more. And Bloomberg kind of came out of that where I was talking to a lot of journalists and columnists, and Bloomberg was looking for people to write and somebody pitched my name. And so I started doing that about five years ago.
Mike Simonsen 4:07
I really liked the work you do with Bloomberg, I like the insights that you trigger from it. I like the way you recognize trends that are happening, and that you really present them in a real cogent way. So I want to talk to you more about that work. Tell me about Peachtree Creek, what kind of company is it?
Conor Sen 4:29
Sure. So it's a registered investment advisor. And it's just me, I'm a one-man shop, and I just manage money for clients, a lot of times friends and family and referrals, individuals. And again, it's just a way for me to stay engaged and help people and manage money, but without the big stress and chaos and infrastructure of a big firm.
Mike Simonsen 4:45
I see. And when you do that, are you primarily doing equities? Or are there other things like real estate investments or something?
Conor Sen 4:54
It's all publicly traded securities. So there's some housing-related equities at times, but it's sort of, I'm kind of a top-down person. So it's a lot of different sectors and depending on what interests me at the moment, and what I think is interesting.
Mike Simonsen 5:06
got it now. That's great. And so you've been doing that for like, 10 years now.
Conor Sen 5:10
Yep.
Mike Simonsen 5:11
That's great. It's nice to see that develop as a testament to the quality of analysis that you get to do.
Conor Sen 5:20
And I've been remote work from day one. So when the world shut down in March 2020, the biggest change for me was my kids with daycare in school, but in terms of work, it was like, okay, I'm already working at home with my dog. So that's not the change.
Mike Simonsen 5:31
That's not change. And the other big change that I've observed is that everybody else is all of a sudden, finally good at using zoom and, like it's okay to have a video phone call. So let's start here, we call the podcast, Top of Mind, what's top of mind for you right now?
Conor Sen 5:53
So right now, your work has been so helpful in terms of explaining what's going on in the housing market, from somebody who works with the data and creates the data themselves. And so the inventory situation, and sort of the, you've pointed out the surge and new listing prices and price increase percentages, and things like that, that tells you about demand and supply and demand in the housing market. The part that's interesting to me right now is that homebuilders and a lot of people are saying, will we expect 10% growth given strong demand given that they're trying to grow, and I don't think the supply chain can handle that this year. So, to me, the story of this year might be that everyone's projecting 10% growth based on strong demand. And then it could just be because there's so many bottlenecks between appliances and cabinets, and garage doors, and siding and windows. At the market really only grows maybe three to 5%. And that, to me is, especially in a time of rising interest rates, I think there are a lot of headwinds for housing in terms of investor, I think home prices are probably going to grow maybe even more than people think just because the supply situation won't be able to respond to demand.
Mike Simonsen 6:57
Interesting. And so when you say so the market has sort of you can see the expectation of maybe 10% growth for home builders, but you figure they're likely to sort of under-deliver on that.
Conor Sen 7:13
Right, something I've been watching is on my street for three or four houses down was a lot that a builder bought a year ago to the day, and they tore down an old house. And they've been building a new house, which they expect to sell for over a million dollars. And I just watched to see like, what's going on with this house. And it's really a great sort of microeconomic way of observing the supply chain in real-time. And it took them a while to frame the house, but they eventually did. And then what happens is they do one step and then they stop for two or three weeks, presumably waiting for that next piece of the supply chain to come on board. And it's just been a very, very prolonged process. And they're still waiting for a garage door I don't see garage door. I'm sure there are no cabinets inside, no appliances. And I don't know when they're going to finish this house and they haven't actually listed it yet because why list a home that you're not ready to sell, presumably prices will keep rising. And so I wonder will this home be ready for the spring selling season? When will they eventually list it? What will it sell for? And then I wonder if you can't build a million-dollar home in Atlanta, what does that mean for the national housing market for home builders trying to ramp up this year?
Mike Simonsen 8:13
Yeah. And it's funny that I redid a kitchen in my mountain house and I may have told the story on the podcast before actually but it's like people look at the kitchen they say hey, that's a really nice kitchen counter. And I say thanks. That's the one they had in stock. And do you know like the local builders, individual builders are notoriously, they're not necessarily efficient in their scheduling and structure, but the big builders are. Like that's the competency.
Conor Sen 8:51
And it could be that your point like the big builders, you're a DR organs and Lunars they're going to get the materials that they need and maybe multifamily as well because multifamily is so strong and they're more efficiencies there and so you're one-off local builders trying to build infill single-family homes just get shut out and even if it's a really high price point, maybe they just can't get what they need to finish homes. To me the story of this year is really about what can the supply chain deliver? Not what's the demand picture. I think demand is strong. Everybody knows demand is strong. It's can actually build these homes.
Mike Simonsen 9:22
And does that then change in, so it is like, we have a rising interest rates. We have inflation, it's now beginning of February that the stock market's been tanking. Are there risks for that home builder, the like, it's now nine more months it's taken me you know, 20 months to build this house and all of a sudden like the things have changed.
Conor Sen 9:53
It's really fascinating because they're looking at your data to probably and saying inventory is crazy, the markets so hot, we might get 10% housing growth, our home price growth again this year. But if I start a home in April, when am I going to finish it? Will I finish it in April of 2023? And then where will mortgage rates and demand be then? And maybe it's really strong and you kill it, or maybe in the second half of this year, earlier, first half of next year, that demand does diminish. And so I think it's a really challenging situation for the market trying to deliver more homes given supply chains, and how long the lag time is, rising interest rates, and what that means for demand in the future. And it's just a really tricky time.
Mike Simonsen 10:31
Yeah. So let's talk about interest rates for a second. I am not skilled at interest rates, I bought my first house in the mid 90s. And I had a eight-something percent interest rate, and I locked it in for 30 years, because I thought it was going to go up. And then I bought my second house in 2001 at six something and I lock it in for 30 years, because I thought it was going to go up. I bought my third house for something and I locked it in for 30 years because I thought it was going to go. So I'm now locked in a 2.7.
Conor Sen 11:09
The interesting thing is, I think the Fed is probably more likely to deliver more hikes this year than people think. So right now that consensus has shifted to four or five rate hikes this year, maybe it's six, but mortgage rates anchor to the 10-year interest rate. And it's possible that that rate doesn't move that much. Because people say, "Well, they're going to raise interest rates later this year, well eventually that just means they're going to be cutting them two or three years down the road if demand softens." And so maybe the 10 year stays below 2%, even if the Fed funds rate that the Fed controls goes to closer to two. And so for the housing market, I don't know if the 10-year yield is really going to rise that much just because the market seems to think that raising interest rates now just means cutting them later. And so is that really going to cool the housing market if the 10-year yield doesn't rise at all. So it's, again, an interesting situation
Mike Simonsen 11:53
so is that instead of dynamic that that is at play where the market is. So there's broad consensus, we're going to get fed rate hikes, but the 10 year, the people that are buying that are vested in the 10 year have already figured that, and now are looking well beyond that. Is that really how that ends up playing out?
Conor Sen 12:17
They actually perversely say, "Well, if they hike more than we expect this year, just means they're going to be cutting sooner and faster later. " Therefore, you actually want to own 10-year bonds and push interest rates down and back end of the curve.
Mike Simonsen 12:27
Wow, okay, but that pushes interest rates out of the back end of the curve. And if that gets too out of whack, that's why the bond market would forecast recession, because the bond buyers are saying, they're way over done. And we're going to be in that bond, we're going to drive the interest rates down far end of the curve, and you get your...
Conor Sen 12:47
A lot of them are even looking at late 2018, when, as we know, inventory was rising in the housing market was softening. They say, well, we couldn't pull it off, then. So why can we pull it off now? So there's just very little concern of long term interest rates rising because they don't think that the market can handle it.
Mike Simonsen 13:03
Oh, wow. Okay. And so then the Fed is primarily interested in inflation. Now, they need to hike to slow down and flip, ostensibly need to hike to slow down inflation. Does the Fed care at all about the fact that the housing market is nuts?
Conor Sen 13:26
I think they do. Because they're saying to the extent that inflation is not just a transitory supply chain thing, they say it's maybe consumers or so they've got all this money in their pocket from the stimulus payments from wealth effects of the housing market and the stock market. And so part of that is, did they want to at least put a ceiling on asset prices to make sure, I mean, if home prices rise another 10% this year, that's another several trillion dollars in wealth for households, which just goes back into the economy with maybe not refi as if interest rates rise, but maybe cashouts, people do renovations. And so they're sort of in an interesting spot where they're trying to raise interest rates to control inflation. But if the long-term interest rates don't rise, and if the housing market is so strong, it is supply-demand picture, they can't slow housing, then what are these interest rates really going to accomplish in terms of controlling inflation?
Mike Simonsen 14:15
Yeah. So then what do they do? Do they hike more?
Conor Sen 14:19
I think that's the question that we're starting to ask. But it's unclear because we haven't even had that first-rate hike. But if we're coming in mid-year and your metrics of inventory is lower than it was this time last year in the housing markets, maybe stronger than it was the middle of 2021, which is insane. But if we can't deliver the homes, and if there's no supply, and that could be the case. And so if you really think that the wealth effect is part of what's driving inflation, how can the Fed ding the wealth effect of some extent? And that might be a question they're asking three or four months from now.
Mike Simonsen 14:49
And give a sense of why the Fed hasn't hiked yet?
Conor Sen 14:56
Until now, they've wanted to not surprise markets. And so because they said we're going to continue asset purchases until March, they felt like this was a schedule that they had to deliver on. But starting in March, just sort of anything goes. And they're telling us that we might hike in March, we might not, we might hike 50, we don't want to tell you anything about what we're going to do going forward. And so market Crispins are looking at the pricing, and what's the market imply? And then they also look at what the Feds done for the past 20 years, which is okay, maybe it's once a quarter. So that's sort of the playbook investors are using to try to figure out what the Feds going to do.
Mike Simonsen 15:30
Got it, that's really interesting. So I saw you had a comment recently about how you could sort of forecast a world where mortgage rates don't really get much above, what was the high end of what you were looking at?
Conor Sen 15:48
Four and a half, maybe Yeah, I mean, that would be the 10 year at 2.5. And it's struggling even get to two. So I think that would imply a pretty drastic change versus what people are thinking already.
Mike Simonsen 15:59
Right. So that would mean not just Fed rate hikes, but Fed hikes the rates and the people who are buying the bonds say, "Wow, Feds not hiking enough, we're still going to be stronger." And so then they're going to be selling those bonds. So it would have to be a significant growth and inflation even while the Fed interest rates hikes are happening.
Conor Sen 16:26
And there's sort of this thing where if the 10 year were to really go to two and a half, that probably means the housing market is even stronger than you and I think, for the market to sustain interest rates that level. So it sort of really is kind of crazy right now, where it's like heads, home prices go up a lot, tails, they go up even more. And I don't think I've ever seen anything like this.
Mike Simonsen 16:43
Yeah, I see that as well with we have inflation, and as I think you said, on Twitter, you commented about the best inflation hedge is a fixed-rate mortgage, and a Costco card. And so, in an inflationary environment, it's good to own and so that generates demand. But in a rising interest rate environment, it's also like motivating people to buy sooner.
Conor Sen 17:15
Right now, you can get a mortgage for three and a half percent, anything, home prices are going to rise eight to 10%, over the next year, as an investment, it's kind of a can't lose thing if the home doesn't fall apart. And you can maybe rent it out and get any kind of rent at all. And it's like, well, I'm already earning five on the carry between home price growth and my mortgage payment. And if I get any rental income at all, it's a free lunch. And in an inflationary environment, it's hard to beat that.
Mike Simonsen 17:38
It's hard to beat that. We had on a broker Path and Post Real Estate, Brad Nix and Becky Babcock, who are from Atlanta, and they're super smart, but they were talking about how they negotiate offers for their clients. And one of the things they pointed out is, in a environment like this, where prices are rising, inflation is rising, and rates are still super low, then it makes it really easy to overbid on the house. If you overbid by 5% or 8%, you're giving up a few months of home price appreciation, but your payment doesn't change that much. And so that really facilitates this overbidding environment that we see.
Conor Sen 18:24
As we all want to look back to is this the same as 2006, which where we got in trouble, but the underwriting is so much better. We're not seeing the same construction levels that we did back then because of the supply chain issues and also builders are just much more conservative than they were then, the demographics are stronger now than they were back then, we actually have inflation, broader inflation. So it's hard to see like, what's worse now versus then in terms of if you're worried about a bubble situation. And I don't see it yet. Maybe we get there in a couple years. But right now, I think we're still pretty early which is kind of scary.
Mike Simonsen 18:54
That's great. And that's a good transition. One of the things I like to ask my guests we're in this crazy, hot market, everybody knows it's crazy hot, it seems to be getting hotter. What are the risks? If we look a year, 18 months, we have our supply chain problems, but what risks do we have? Are we facing that derail everything? Are there things I'm not seeing?
Conor Sen 18:58
Yeah, again, we've had the ultimate housing bust. So you go back to that, and it's speculative bidding, there's really not speculation sort of the way we think of it historically. We had those teaser mortgage rates, so there was the risk that the mortgage rates would implode and that's not a risk here. The underwriting is really strong. There's very little risk of any kind of oversupply situation in the near term. So I guess it's sort of, if you're in Boise and you pay 50% more than the market price, then maybe get six to 12 months where home prices correct 10% if price growth is really insane. But if you're going to hold the home for three to five years, I don't see that kind of risk right now. And I think that hypothetical baby boomer supply is so much later in the decade, at least something on a wide scale
Mike Simonsen 20:03
Right when they finally start selling and retiring and moving into assisted living and freeing some of that inventory.
Conor Sen 20:12
I mean, so there will come a point later in this decade where the Millennials have largely bought the homes they need, and then the baby boomer supply will come. And that's probably the risk in terms of you really worried about some sort of structural issue. But in 2022, we're still pretty early in this like meeting Millennials probably in their early 30s right now, they're just getting started. And they probably haven't been able to buy a home.
Mike Simonsen 20:33
Right, famously haven't been able to buy a home yet. So then let's shift gears a little bit into the millennial demographic, things like job creation and household formation, how should we think about what's going on there?
Conor Sen 20:51
Well, part of it is that it's easy to look at just what's going on now and say, well, we've had all home price growth and rent growth is up in the last 12 months, how can that be possible. And we under bill for 10 years, and then also household formation was very low for 10 years. And so even though household formation is rising, partially due to just the growth of that demographic surge, we were sort of under household ID, which is a not really word, but we'll go with it for a long time, because people weren't forming households at the rate that they typically were. And so you have household formation growth plus millennial demographic growth. So you have these sort of two growth drivers that it's been expected for a long time, but it's finally happening. And so it's probably going to take several years for this to play out where household formation growth normalizes, and Millennials have bought the homes they need to buy. So again, I do think, three to five years from now, we probably have a different situation, but it's still sort of tough in that you can look at the home price growth, and maybe at some point, you say it's unsustainable. But if demand exceeds supply prices go up. That's just sort of the way things work.
Mike Simonsen 21:51
Yeah, all right. Let's talk about investor activity. We've got big hedge funds, buying lots of properties, we got individuals buying lots of properties. And that's one of the trends that I've talked about trying to bring to people's attention with the hedge funds get the headlines, but the bulk of the investment home buying is actually with individual investors. Do you see things there? Are you thinking like that continues to grow? Have you given any thought about those factors?
Conor Sen 22:27
It probably depends on the metro area. So I mean, if you think about an investor, the big investors are pretty predictable, where they're saying, what are the metros with great demographics, because we don't want to mess around with suburban Ohio? It's too complex. You want that multiyear tailwind so you can show on your investor slides to your investors, like, national demographics are up and to the right. And so they're crowding in the same probably five or 10 markets, your rallies and Charlotte's nationals, and Austin's and Phoenix's and whatnot. And then they're looking at, well, what's the part of the demographic curve we want? And it's that entry-level, middle-class millennial buyer. Maybe that's 400 to $500,000. And so that's the part of the market that they want. And so I think if you get that middle of the pack, buyer market in these metros, investors all want to be in the same places. And so if you're looking to buy a home in Phoenix in that three to $500,000 range, you're competing with your blackstone's and those types of guys. But if you're buying in Maine, it's probably not an issue. So it really depends on where you are in the country and then where you are in the buyer pool as well. And they're also probably not buying million-dollar homes in Phoenix.
Mike Simonsen 23:32
Right, that's for sure. One thing I noticed when I talked to individual-level investors is how they really shifted their focus from the Austin's or Phoenix's to the next level of markets, the Memphis and the Mobile, Alabama, or Jacksonville. Jacksonville is exploding right now.
Conor Sen 23:59
No, I think you're right. And since we both lived through 2006 2008, we're asking ourselves, like, are we the crazy people this time around? But it's not clear to me yet, like where the downturn is going to come from? Maybe we're just too scarred from the last cycle.
Mike Simonsen 24:16
Yeah, it's funny, I was talking with somebody, I think it's on a forthcoming podcast, maybe I'm scooping myself here. But the interesting comment was, we're so conditioned to resist the phrase, it's different this time. It feels different this time. We're so conditioned to rephrase it that to resist that thinking that maybe the right thinking is actually different last time, like last time was the novel.
Conor Sen 24:47
Yeah. Well, thinking about the sort of the labor market story this year, my guess is we're going to add maybe 3 million jobs and then wage growth is going to be maybe five to 6%. And so that kind of papers over a lot of sins if you make a bad investment purchase, just because job growth means home price growth and housing growth. And the job growth we're getting isn't really that tied to the housing market, which again, was how last cycle was so different where you had all these mortgage and home construction related job growth. And outside of that, maybe the market especially like San Bernardino, there really wasn't much going on. We don't really have that at summer.
Mike Simonsen 25:22
Yeah. So 3 million jobs this year, and that is in a world where we're trying to pull the steam out of the economy.
Conor Sen 25:34
Yeah, I think there's so much momentum for the economy this year that the Fed is going to hike, and we've seen that it's spooking markets. But I think next year, if we're going to worry about the Fed hurting the economy and markets, I think next year is the bigger concern when at that point, maybe supply chain things do start to normalize. And the people who left their jobs during COVID have all come back and gotten a job. And there's less sort of momentum in the economy. Whereas right now, there's just so much momentum. And the only thing holding it back is really the supply side.
Mike Simonsen 26:01
And in that sense, do you think of inflation? And we put a bunch of money in the academy, but it's also could be supply-side inflation? How do you view inflation and where it's coming?
Conor Sen 26:15
Well, I think housing is a great way to think about inflation right now, where if people think we're going to grow home creation by 10%, this year, and we only grow up by five, whereas maybe we would only got an 8% home price growth if we actually got that 10% growth in deliveries. But since we didn't, that extra demand just shows up in higher prices, rather than more units. And that's probably a way to think about inflation more broadly right now, where if we had the supply, we wouldn't get the inflation, we just get the volume growth. But that demand shows up, it either shows up in volume or pricing, it showing up in pricing right now.
Mike Simonsen 26:47
Yeah. And there's really no sign of that of the supply easing yet?
Conor Sen 26:53
Not yet. Builders are all saying we're growing community count, but I joke about it with some other housing people. It's like, okay, you built the road into the development, but you can't get the appliances or the trusses, you need to actually finish the home. So I appreciate your growing communities and eventually we will get those units, but it's not clear when we'll get it.
Mike Simonsen 27:10
Yeah, and the supply constriction across everything in the economy. So it's not just the housing part. And I have a friend who runs a manufacturing robotics company. And they, like, tripled their bookings this year, but have their deliveries because they just can't get and the demand is off the charts. But deliveries are extended from a three-week window to a nine-month window.
Conor Sen 27:43
I think, yeah, one interesting thought here is how the supply chain bottlenecks all are interrelated, where it's like, if a retailer is struggling to shock at stocking shelves, then it has to get more units on a boat from China. And if those boats are all full with retail units, and that means you can't put windows or housing-related goods on them. So to some extent, the housing supply chain is being impacted by their supply chains. And so if those were to get unclogged, then maybe the delivery times get reduced and housing could get fixed to some extent.
Mike Simonsen 28:12
Yeah, so we've got the booming economy, but we have this constriction. And in your view, which I totally buy it constricts the growth in the housing market, especially in the new construct. Does it constrict the growth in everything?
Conor Sen 28:32
I think so. And it's even constricting labor where maybe if you see the automaker's where they would love to run their plants 24/7 right now, but they don't have the semiconductors. And so that means that some workers are being furloughed while they wait for semiconductors to come online. So as that supply comes, that actually leads to more workers and more incomes, which then feeds into more demand as well. There's just all these things pushing for more growth in the economy right now on the volume side, on the income side, on the pricing side. And it's again, this is unprecedented in my career. And the question is what is that slowdown? And will it happen organically? Does the Fed need to do it? What would that mean either way? But I think those are questions for later date whereas right now we're just trying to manage this wall demand.
Mike Simonsen 29:15
Yeah. And so, for our audience thinking about working with people who are buying homes right now, or selling homes right now, the trends are obvious. They're big, and they sure don't look like they're derailing this year.
Conor Sen 29:33
No. And the hard thing is when you see things like Ali will sing The cabinets are nine months delayed in her checks. It's like, "Well, should I just wait a year to get cabinets?" It's like, well, if you get them a year from now, they'll probably be 10% more expensive. So you're not really better off waiting. It's just if you said to somebody like what should I do? It's like I don't have a great answer for you. If you wait, you're going to pay more and you won't get it for a year. And if you buy now you're trying to compete with everybody else. So it's a bad situation.
Mike Simonsen 30:00
It's really wild that way. So let's look backwards a little bit, highlights from 2021. What surprised you, what was notable there that we should pay attention to?
Conor Sen 30:15
I mean, I remember back in the spring 2020, which is when I really started following your weekly videos, and it was seeing housing come back soon didn't surprise me. Like in March 2020, I had a couple friends saying, should I not buy a house? I said, no, like, inventory is low and demographics are what they are. You need this house for your family, I would just buy it. But then seeing it come back was like, okay, I can buy the bottom. But then when it took off that summer, I think that was really surprising. And there was some thought, well, maybe this is pull forward demand, people were going to buy a house next spring, now they're doing it. And we were waiting to see that demand slump. And I think the spring of 2021 is okay, we're going to back off because last year was crazy. And then it didn't. And so I think that was surprising that the peak was really more like the middle to the latter part of last year. And then when supply inventory started growing in the back half of the year, it's like, okay, we're starting to, we're going to get normal to some extent. But then it was probably October where inventory was dropped, pulling back again. You and I were talking and it was like, okay, well, this is happening a lot sooner than you would think. And it's like the spring buyers season started in November. And so I think last year was sort of just surprising at how the demand didn't back off. We didn't really get that normalization. And if anything, arguably, this spring can be stronger than last spring, which is just completely mind-blowing.
Mike Simonsen 31:27
Completely mind-blowing. I was hoping that the fall was getting a little more back to seasonal normalcy, but then all of a sudden, it feels like it's not.
Conor Sen 31:38
Right. I think this is a new definition of is this a healthy housing market? I would say no, it's a very strong housing market. It's a very frustrating housing market. But it's certainly not healthy. I don't think anyone make sense.
Mike Simonsen 31:49
Yeah. I sometimes think of it, we have the curse of fighting the last war. And the last war is, the crisis is overpriced homes with artificial demand that cratered. And we're all looking and fighting that war, when our real crisis is a supply crisis. It's like the price crisis for first time homebuyers, like it's an entirely different war that we're actually facing, but we're all still fighting the last war.
Conor Sen 32:22
And something that's been interesting to me is watching the homebuilders and listening to these conference calls to hearing the executives talk about their thought process. Because, if you're just following this market, you would think, why aren't they just flooding the market with homes as quickly as they possibly can? But they're driven by shareholders. And what shareholders want, because they were so burned in the last cycle, they don't want excess leverage. They don't want all that debt. They want steady, predictable growth and high-profit margins. And that's what builders have been able to do. They say, we grew 10% and volume, pricing went up, our margins went up, we're buying back shares and we're going to try to grow 10% again. And they just want to have this steady growth, turn capital shareholders and part of that's growing volume. But that's not really the goal. The goal is shareholder returns. And so they're not really incentivized to fix the market. They're just operating on their own incentives.
Mike Simonsen 33:10
Interesting. Okay. So the shareholders are fighting the last war. As a homebuilder like, well, that's who I got to answer to.
Conor Sen 33:22
Yeah, you say, like, I grew book value, 10%, we bought back stock, we're growing community count, our margins are at all-time highs, what's not to like, and they're frustrated by supply chain stuff. But if a work supply chain just means you raise prices, and you make it up on margins, you're kind of okay.
Mike Simonsen 33:38
That's really fascinating. There are a couple of comments that come to mind. And it's really fun in the Altos data over the years. The fun opportunities are when we get to be contrarian and bullish. Thinks that housing is tanking, and we said it's not, last year in 2020, we had five weeks of that. And then the market was turned around, we had actually a couple months of where we got before the market caught up with the data. A couple months of five weeks of down market and then we had recovery. So that was a really fun opportunity to be there. We had it in 2011 when the first-time homebuyer tax credit of 2009 went through April 1 2010. And it very much pulled demand forward from end of 2010 into the first. And so by the end of 2010, the housing market slowed way back down again. But in January, February, March of 2011, we could see organic levels of demand picking up, we could see prices rising with no incentives in place. But the headlines were still Armageddon because they were based on the fourth quarter. And so those moments were really there. And then some of the lagging indicators like the Case Shiller didn't really recognize the home price turnaround until a year later, in 2012. And so like those are opportunities when it gets to be was really fun with the Altos data. I'm afraid for the next time when we're contrarian, we're going to start being down for everybody else. And I don't know what to do that.
Conor Sen 35:32
Yeah, well, I think about last year when everyone was predicting, okay, when these foreclosure moratoriums expire, a wall of supply is going to hit the market and crush pricing. And we would watch it every week. And it never happened. Because everyone had made a lot of money in their home, they could sell their house if they wanted to, they could restructure their mortgage and that just didn't happen. That's why didn't come. And so the last year was maybe the supply surprise was from the foreclosure supply not being there. And this year, it's going to be on the builders not being able to deliver. And so the contrarian but bullish as well, home price growth is going to surge because builders can actually deliver homes this year.
Mike Simonsen 36:05
Interesting. And that's not yet priced into the builder stocks.
Conor Sen 36:11
Well, the interesting thing, as a public market investor, and I think about because if you're a specific housing a new investor, you would say pricing was going to be off the charts this year, margins are going to be strong, there's infinite demand, mortgage rates aren't going to go up that much. Why wouldn't I want homebuilders' stocks when they're so cheap? But if you're a kind of a generalist investor, you'd say, well, wait a minute, you're just telling me that they're not to be able to meet their projections for demand this year. And then the Feds hiking interest rates, why don't want to own housing stocks? And I think that's why they've actually been pretty weak this year because people are saying, rising rate environment, they can't meet what they're telling u they're going to do, and so I don't want on the stocks yet. But I think later this year, once that's priced in, they can be great investments.
Mike Simonsen 36:52
Okay, that's good. Well, I've proven over and over again, that I am not a stock trader. So I will just listen to the voice of the experts on how that might come to pass. Okay, we've talked a little bit about the future. Let's talk a little bit more. We have some visibility on 2022. Sure, looks strong, sure looks hard to derail. Some of the trends we're talking about are three to five years, we have the millennial demographic trends, probably that long before we see any volume of Boomer inventory come in. What are other big macro trends over the next several years that we should be paying attention to that haven't yet shown up in the Altos data each week?
Conor Sen 36:54
Well, I think when it comes to housing specific, specifically, the part of the market that's going to pique first is entry-level. Because like, I'm 40 and so, we lived in a smaller home and we had a couple kids, now we live in a bigger home. And so I think about whatever I want is like five years ahead of the market, because I'm just older than most Millennials. And so right now, they all need that starter home, and that three to $5,000 price point. And eventually, they're all going to have their starter home, and then they're going to want their trade at home in five to seven years. But that means they're going to be selling their starter home when they do that. And so if you're looking to kind of like ride the millennial wave for a long time, I would focus more on the trade-up market than the entry-level market, because the entry-level market is crowded. And that's going to peak first.
Mike Simonsen 38:20
Interesting. So the entry-level peaks first. And I wonder if that has geographic implications. What does that mean for Atlanta, for example?
Conor Sen 38:29
Right. So, if you wanted to own as an investment, I mean, right now, you're probably okay. But I wouldn't be buying entry-level homes in these hot markets in two to three years. I think at that point, they might be fully priced. And then you start to need to shift to the next part of the market, which is, it's not going to be McMansions per se, but it'll be whatever the millennial equivalent of that is. What is a 40 year old, college-educated millennial going to want in 2030? That should be where the focus should be in a few years.
Mike Simonsen 38:56
That's great. That's good. Thank you. It was part of my rationale for buying my mountain house. It's like 20 years, those Millennials are going to be wanting to have their mountain house.
Conor Sen 39:06
Yeah. And I'm seeing in my friends, like, I don't know how old you were in 2008. But you probably are like, blew up no money, I'm never going to afford all this stuff. And then you get a little older, like, I do have some money. And so I think 40-year-old Millennials are going to have a lot of money, because they didn't live through that housing busts the way that your generation did. And they're going to want really nice stuff. And catering to that will be more important than just, here's a unit in Phoenix, because you need to own a home. It's going to be I want something nice.
Mike Simonsen 39:34
Yeah. And so I'm Gen X, I'm straight Gen X. And so I was 38 in 2008. And what that illustrates, one of the things that illustrates to me, I think maybe underappreciated about that housing bust is 2008, the Gen X's were in our late 30s, that's peak home-buying years, but there are fewer of us than either side. And so one of the things that happened was is that there are fewer Gen X going through there and all of a sudden, demand can shrink because they're less of us. It's sort of like that demographics drive everything argument.
Conor Sen 40:15
Well, so yeah, this is a great point, because in 2010, you were 40. And that was probably like the most broke a 40-year-old crop of Americans ever been in depression. And your generation was small. So we went through the 2010s. Outside of like the Bay Area, there just weren't a lot of wealthy 40 somethings because they all got their home equity wiped out if they didn't buy a house, and they were just trying to get a job and rebuild their savings. Whereas, I'm 40 noupmarket the aggregate household wealth numbers in the US, we're going to have a bigger generation of 40 somethings, because Millennials are bigger, and they're going to be a wealthy generation of 40 somethings. So that to me is a decade-long theme of affluent 40 somethings and all the stuff that they're going to want between housing and cars and vacations and everything else.
Mike Simonsen 40:58
Yeah, that drives a ton. Excellent, excellent, excellent thinking, are there things that you're thinking about themes, macro themes that that whether or not they impact housing or that we aren't hearing yet about in the media, the conventional wisdom?
Conor Sen 41:14
I think we think about remote work in terms of we're on zoom, we're not in an office, and it's very kind of first-order thinking about remote work, but it's to the extent that that becomes the future. What's that whole, like, sort of supply chain? Supply chain is the wrong word. How do you change the economy to serve the needs of college-educated information to remote workers, and it's not just a zoom in a camera in your room, it's like, maybe more built out, we work type things close to their homes, maybe it's coffee shops, restaurants, they're actually going to go to during the day. So there's going to be this whole ecosystem of businesses that gets created to meet these needs. And right now, we've kind of dabbled, we've done a few things here and there. But assuming we get to a post COVID normal, I don't know if you work from home or have in the past, but it's sort of, there'll be a whole ecosystem created to meet those people. And I think that'll be an interesting thing to see.
Mike Simonsen 42:06
And, you know, this is a great opportunity to tell the people who are listening, they maybe have heard me use the phrase zoom towns. And Conor is the one who coined the label zoom towns for all these like booming housing economies of the last couple of years. So zoom towns, in your view are here to stay? Tell us more about that. That sounds like what you're saying?
Conor Sen 42:34
Yeah, I think they're here to stay at sort of, you don't want to be too specific about what they're going to look like in the future. Because it's easy to say, okay, it's a bunch of tech workers go to Tahoe. That's certainly part of it. But I think about as a parent, it's like, okay, what can I do differently for my lifestyle with my children now that I don't have to be in an office to work? And so, will I take a spring vacation, instead of going just to Disney World, I'll go to a place where kids can do stuff during the day, but I'm going to work, maybe take meetings, and you turn vacation towns in a sort of you create more business amenities there. It's sort of a blending of leisure towns and work town. So it's not just Midtown Manhattan, and the Hamptons, which are two separate things, you sort of create a blending sort of in the same way that tech versus retail, like e-commerce versus retail, that sort of Omnichannel and they're all kind of intermingled now. We're going to see things like that in real estate, I think where Tahoe might have a we work, or maybe not, because they're going to be a lot of people working nine to five in Tahoe doing stuff, they won't be in an office, maybe, but they'll be doing meetings and events and things like that.
Mike Simonsen 42:44
That's great. That's a really interesting commercial opportunity. Are there the we work related things in normally remote vacation places? Like we've got reliable, fast internet, you can have your subscription to come work here. It's like, I have a gym membership for when I'm in the mountains too. But having a reliable office space, that's really an interesting opportunity.
Conor Sen 44:17
Yeah, like what is the mixed-use development look like in a vacation town when 30% of the residents are there working?
Mike Simonsen 44:24
Yeah, yeah. Super, super nice. And you don't think that that's a permanent change that we're not like, about to get back into really mostly back in the office?
Conor Sen 44:36
Yeah, well, I think like over a five or 10 year period, what's more likely to become a better experience? The remote work experience or the office experience, and I think both are going to have to compete to some extent where offices are going to have to become more compelling to draw people in when it's not just here's your cubicle. So it's better amenities, more events, a more fun office environment than in the past and then also vacation towns are going to have to compete to win these workers who can work anywhere. And so we're going to have to see what the winning models are. I think it'll be multiple models. But offices didn't have any competition. Now there's lots of competition.
Mike Simonsen 45:13
Yeah, I have a hypothesis that a really compelling office environment is actually going to be a recruiting advantage over a fully remote place. Like, if your office is so lame, that nobody ever wants to go in there, that's a problem. You want to be a place where like, I love going in and working with my people. And it's creative and the communication is rich as opposed to never going back in there.
Conor Sen 45:47
Right, it's like, you just feel this, all it has is like a rinky dinky like, deli in the front. That's it, like that's not going to draw people back, not the workers that he wants to come back.
Mike Simonsen 45:56
Exactly. That's really neat. I love those concepts on Zoom towns, I love the evolving concept of what really zoom town is, and there's a lot to be had there like that. I hadn't thought about some of those opportunities. Anything else that people haven't picked up on yet.
Conor Sen 46:13
I think we've covered a lot of things, it's a really fascinating time, because right now, I think, three to five years now, it's all going to be very obvious for us right now, you're just sort of throwing out ideas, and maybe 30% or 50% work, and you're not really sure which ones yet. But I do think that we're not going back to any kind of pre-COVID normal of 80% of the time spent in the office. If anything, I think companies are going to have to end up being remote first. Because otherwise, it's like, like, I've got friends who've gone back to the office, and they're doing zoom calls from their desk. It's like, well, why even bother going in if you're just on Zoom. So it's even companies who are going back to the office find themselves working remotely from the office. And that's just a bad experience. So I think anyone hoping for just normal to come back, that's not going to happen.
Mike Simonsen 46:55
Not going to happen. Yeah. All right. Well, that is just terrific. Let's sort of bring it, wrap it up. Let's make sure, where can people follow your work?
Conor Sen 47:06
So I write for Bloomberg Opinion. I try to write twice a week. Sometimes it's more like once a week, so you can just Google and find me there. And then on Twitter, ConnorSen is my handle. And I tweet way too much. But I try to keep it the topics that I feel like I have something interesting to say about
Mike Simonsen 47:20
Yeah, that's great. I really appreciate both your Twitter feed, but also the Bloomberg Opinion Columns, I read them, like every week. I really appreciate the insights. I loved your take on the Buckies gas station chain, share real quick what your observation was there.
Conor Sen 47:41
Yeah, so Buckies, for those who don't know, is this Texas base chain of mega gas stations with like 100 pumps, and then has an attached retail store. That's like 100,000 square feet, it's your classic like, how to come from Texas type thing. And so it's really an experience to go through it. And unlike a gas station, you're probably spending 20 or 30 minutes there, they've got barbecue inside and all kinds of stuff like that. And so in a world where we have more electric vehicles and larger charge times, when you're stopping to charge for 20 or 30 minutes, you just don't want this highway gas station where there's some warmed-over hotdogs and combos or something like that. You're gonna want a different kind of experience to kill 20 or 30 minutes. And so I think a Buckies type model might be the winner in an electric vehicle highway charging world.
Mike Simonsen 48:26
Fascinating. Yeah, I love that. I love that insight. That's super, super great. Okay. That's all the time we're going to take today, folks. My guest has been Conor Sen. He writes for Bloomberg Opinion. You can find him there at Bloomberg and also on Twitter at ConorSen. Conor, thank you so much for your time today. I really appreciate your take. I appreciate your contacts. And it's really the reason that we're doing this podcast. So it's not just the data, it's like all of the implications around the data. So thanks for your time today. This is the Top of Mind podcast. You can find the Top of Mind podcast where all the podcasts are. You can also find us on YouTube. We do the videos on our YouTube channel, Altos Research YouTube channel or altosresearch.com to find all the context. We also share like the transcript and the great takeaways from each of our interviews on the Altos blog. So go to altosresearch.com to get all of those good things, and more soon. Thanks, everybody.
Conor Sen 49:34
Thanks, Mike.
Outro 49:35
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