Episode 39: Navigating 2025’s Housing Market

Tony Misura (00:00)

Thank you for joining our latest episode of Hire Smarter with Tony. I’m super excited. Chris, Chris Beard is our guest today and you know Chris, myself along with the rest of leaders, the industry have just really weighed on every word and every presentation that comes out from the John Burns organization. You guys do a fantastic job with helping us navigate all these macro economic factors to try to put together our business plans. And I was excited to bump into you in the recent conference show run this fall. And I know many individuals are going to be.

putting their plans together. Chris Beard with John Burns Consulting. Thank you so much for joining us.

Chris Beard (00:39)

Thanks Tony, my pleasure to be here and yeah, I talked to a lot of dealers all throughout the year. One of the things that I do at that John Burns Research and Consulting is I host a compiler monthly dealer survey. We talked to independent dealers in lumber yards from around the country on what they’re seeing real time for order growth and their expectations for the remainder of this year and then into next year. We asked him things about backlogs and price, price increases they may receive demand by customer type so.

We really get a nice 360 view of what the dealers are seeing in real time. And that helps us inform our thesis for what we’re seeing for the remainder of this year and then our forecast a couple of years out too. So it’s great to be here.

Tony Misura (01:21)

Well, that’s terrific. just a quick plug for that, So we’ll make sure we include that link. with everything from an industry perspective, the more participants you have, the better the data becomes. And they certainly get to live and kind of eat their own production from that standpoint. So definitely a good incentive for everyone to get more involved with that if they’re not already. 2025, what a wild year, right?

Chris Beard (01:46)

It has been.

Tony Misura (01:47)

We’ve got a number of different areas we can we can jump into, you know, before we do that. How did you end up with John Byrd like doing what you do like your your presentations are so crisp and accurate. ⁓ You must have a really strong kind of financial background. I’m curious.

Chris Beard (02:04)

Yeah, so I’ve been with John Burns a little over four years now, and before that I led corporate strategy at Pella Corporation, so Pella Windows and Doors. And before that I’d been in the consulting side, the research side. Most of my career in building products worked with a number of large manufacturers over the years. And when I was at Pella and I’m here in Iowa, so ⁓ live close to Pella, Iowa, you know, just that was obviously focused on Windows and Doors, and I do know the Windows and Door space very well.

But I just was yearning for the overall building products world. And I always tell people, building products, you either love it or you hate it. There’s no like, it’s okay. Because as you all know, there’s no black and white. Everything’s pretty gray. we’re kind of tapping in the dark. There’s a lack of really good data as far as what’s going on. ⁓ We can pull together a bunch of different pieces and triangulate our thesis. And that’s what we do. And I think we do a really good job of that here.

But yeah, it’s an industry that I’ve never heard anybody say that like, it’s okay. know, it’s either, I’m really passionate about it. And as you know, Tony, once people get into building products and housing, they either stay or they make a quick exit. And I’m one of those that I’ve built my career in this industry and I absolutely love it.

Tony Misura (03:18)

They’re just great people. mean, it’s great people, right? We could say, you know, houses, homes, you know, the whole construction elements to it. I really, really enjoyed and I still get excited every day to serve to serve the organizations and people in the industry. The market, you know, as an organization, you guys do a fantastic job collecting.

collecting macro data and trying to give some reads to the industry. I’m curious, how do you see 2025 kind of shaping out? What will this year, we’ve got three quarters behind us, how will 2025 be identified?

Chris Beard (03:56)

You know, I think coming into 2025, there was broader optimism, especially on the new construction side, which is important for the dealers primarily. You know, I think a lot of folks thought, well, you know, after a couple of down years, we would start to see a rebound in 2025. We were one of the first firms late last year, late 2024, to say we actually expected single family to be down slightly. And the reason for that is we saw

the builders ⁓ unsold inventory creeping up. they had ⁓ builders by design where we’re completing more spec homes and wanting to have them available for quick sale. ⁓ They would do the rate buy downs and they’re certainly still doing that. But once we got into the spring, we saw that typical spring selling season never really springing, if you will. know, home buyers, prospective home buyers stayed on the sidelines. And there are a few different reasons for that. ⁓

Number one, the economic uncertainty around policy changes, ⁓ tariffs were part of it too, expectations of mortgage rates coming down further. And so prospective home buyers just stayed on the sidelines. And as we move through the spring into the summer, we saw the home builders really say, especially the production home builders, ⁓ put their foot on the brakes and say, we’re gonna really slow starts. And so as we move through the summer into the fall,

We’ve seen that and we did end up taking our forecast down. We’re thinking now it’s going to be mid single digits down, single family starts. But conversely, you know, there was a lot of talk around multifamily last year and the number of units under construction. And just due to the affordability concerns and household formations that we’re seeing, we’re actually seeing more strength in the multifamily side. And so our view on multifamilies changed a little bit.

And certainly as I travel around the country and talking to folks, we’re starting to see more strength in the multifamily as we get into the last quarter of this year and expect that to continue to just because single family is down and households are still being formed. And so that’s creating some demand on the multifamily side.

Tony Misura (06:02)

It is is density becomes a real factor right from affordability perspective and if we’re talking about, know, I guess single earning homes right with no kids or do that seems to be the theme right those individuals without kids, which is an interesting social dynamic in the US now. From a multifamily perspective, do you see this as a major Metro?

play or do you see this broader throughout all markets across the US?

Chris Beard (06:31)

You know it’s different. So there was a lot of multifamily that came online. A lot of multifamily still under construction in the Sunbelt region, especially Texas and Florida, the southwest. And so there is a lot of supply that’s come online. Conversely, the Midwest is actually seemed to be OK from a multifamily perspective, obviously from a unit’s perspective, a lot smaller base. But the fundamentals of

And we have a team that really digs into demographics, really digs into migration patterns. And we’re in the regions of Sunbelt regions in Southeast, especially Texas, Florida. People are still moving there. There’s still wage growth there. There’s still job growth there. And so the absorption rates, are, so absorption rates when units are completed, people moving into them, we’re actually seeing them be okay. And we think that there’s going to be some,

stronger starts in those regions in the coming years just because you know it is positive net migration people still do move there. Companies are still relocating to those regions too and then wage growth contributes to that too.

Tony Misura (07:26)

That’s a really important factor that the migration continues in the Sun Belt states, Texas and Florida and the Phoenix, Arizona markets. We’ve got customers in those markets right now that are concerned because markets are down. So it’s not a migration issue. It’s not a jobs or income issue. What’s causing the gap in the market in those southern regions?

Chris Beard (07:49)

think it’s just a lot of supply has been coming online. And Phoenix still has a lot of supply to come online. And we look at permits too, and permits are still way up in Phoenix too for multifamily, but also built to rent. So units that are being built, single family rental, a lot of units there. so that’s what’s contributing to it. Specific to Texas, a lot of, everybody thinks about Austin. And I was in Austin a couple of times this year and I remember

running through the city and seeing in the spring like, yeah, sign today and get three months lease for free. And you’re thinking like, wow, they’re actually, they must really be desperate if they’re gonna give a quarter of the year away for free. So there’s a lot of units that have come online, a lot of units still under construction in those markets because obviously the multifamily build cycle is about two X or more than it is for single family. And so the units under construction.

But like I said, as the absorption rates ⁓ increase and we see people moving there, ⁓ we do expect there to be demand in the coming years, although things might be a little bit weak right now.

Tony Misura (08:51)

Okay, so the track production builders in those marketplaces, let’s just talk about the smile, The southern regions. What do you think? 50, 60 % market share, right? In those places, is that pretty, is that the number?

Chris Beard (09:04)

Yeah, mean, nationally, like the production builders, if you think nationally and obviously the southeast Florida, Texas, the southwest California, that’s the bulk of the single family production in the US anyway. The production builders, public production builders have around a 50 % market share all in. So ⁓ they’re big, obviously, in those regions. And we’re starting to see… ⁓

prices, new home prices actually decline in those regions again, just due to supply. So competition’s getting tougher. You know, they’re fighting over every prospective home buyer and we’re seeing prices decline, which is something we haven’t seen in a very long time, on new home prices coming down. So, you know, if you balance that against the affordability equation, and then you think about, you know, building materials prices haven’t…

typically been coming down. know lumber’s volatile, lumber’s lower this year than it was last year and the years previous. And then you’ve got the tariff threats from Canada with the Canadian lumber is going to play into it. I do expect lumber prices to go up next year. But the builders are actually having to lower some prices just because of the competition and the supply in those regions.

Tony Misura (10:14)

So it is fascinating that they’ve lowered their prices a bit because they basically have hung on to COVID highs with homes. that accurate?

Chris Beard (10:21)

Yeah, they have been and we’re not talking significant price declines. I we’re still talking single digits ⁓ for the most part. And then the incentives that the big public production builders are having to layer into, I think our last reading from our builder survey. So we talked to ⁓ roughly 20 % of all new home sales each month in our monthly builder survey that we do here. Our team does a fantastic job of talking to the home builders. And one of the things that we ask each quarter is,

what, how much incentives are you giving? And one thing that jumped out is like, think our latest reading builders were saying about 10 % of the sales price in Texas, they’re having to layer in incentives. So, you if you’ve got a $500,000 home, I’m just making this up and then layering in 10 % of incentives right off the top in the form of mortgage rate buy downs or other incentives that they’re layering in, you know, that just kind of goes to, to show what the competition looks like and then what the supply situation looks like too. So.

⁓ It’s a pretty big deal and it’s obviously affecting builder gross margins too.

Tony Misura (11:22)

So I just, in preparation for this Chris, I was frankly a little surprised. DR Horton is offering a 5.33 mortgage rate on a 30 year fixed rate for a home as a buy down rate as we’re talking about. But these aren’t teaser rates, right? Like I thought I would find more teaser rates. Yeah, there’s a 4%, 4.99 % teaser rate for the first year, but.

I was impressed. I mean, 5.33, that’s a decent, that’s a decent rate. So it causes me to question like, is we’re all waiting on pins and needles, right? For the, for the next Fed to, or for the next Fed meeting to lower interest rates. Does that really have a factor on mortgage rates or, not? Because we’ve got the builders that are already buying down these rates.

Chris Beard (12:09)

Right, and so as you know, your listeners may know too, the 30 year mortgage rate is really tied to the 10 year treasury. And so there’s a spread between what the 10 year treasury yield is and then what the prevailing mortgage rate is. And we’ve seen that spread kind of extend out. know, in the 10 year treasury, the bond market dictates what that yield is. And so you think about…

all the economic uncertainty that we faced in 2025. The overall macroeconomic impact that tariffs are going to have, the macroeconomic impact of labor with immigration. And so we had seen earlier this year, the 10-year treasury ticking up, but then since then it’s been falling. So mortgage rates have been slowly coming down, ⁓ builders have been, especially the public production builders have been pretty good about saying,

We’re gonna buy down this rate. We’re gonna take some money and we’re gonna buy down this rate to get people in. And that teaser, that rate that you mentioned, that’s in the sweet spot. So we’ve done quite a bit of consumer analysis over the past several years. Once rates started increasing in 2022, our new home trends Institute, part of John Burns research and consulting, we have a pretty solid base of consumers that we talk to.

And we’ve been asking for years and years, you what is the mortgage rate? What does the rate have to be for you to consider purchasing a new home? And that’s consistently come in at about five and a half percent. So 5.5 % is when consumers will say, you know what, that’s low enough that I would consider taking out a new mortgage and moving. And so not only new home, but also, you know, resale home. And the interesting thing is we had a recent report.

consumers are actually expecting. think it was something like 70, 80 % of consumers were expecting rates to get down to five and a half percent over the next 12 months. And the bond market’s not showing that. I mean, if we look at the projections on the 10-year treasury with the bond markets expecting, rates are still expected even through 2028 to be above 6%. ⁓ So that also ties in with some of the slowness that we’ve seen this year too, a little bit of mismatch expectations on mortgage rates.

⁓ from the consumer’s perspective versus actually what the prevailing rate is, the market rate is.

Tony Misura (14:20)

Chris, dive into this for me if you could and help me understand. So the 10-year bond rate, research this morning, January 2025 was at 4.8%. Today we’re at 3.9 % on the 10-year bond rate. So that’s a full 100-point basis point drop, right? With a continued decline kind of trending here. But you’re saying that the futures on that 10-year bond

are being a little stubborn.

Chris Beard (14:53)

They have been a little bit stubborn. Like I said, there has been some relief recently. think so obviously there was a lot of discussions around the Fed needs to be lowering rates and those are short term interest rates, as you know. so ⁓ earlier this year, let’s say, know, spring into the summer, the messages from the president that the Fed needs to lower rates and the expectations that the Fed would lower rates. But I think

Initially, the bond market said, okay, well, if the Fed lowers rates, it’s just because they’re being strong armed. And they think that, you know, because of political pressure, they’re going to lower rates and not necessarily because of underlying fundamentals being different. And so I think now as we’ve seen, course, we’re not getting labor market prints right now due to the government shutdown. But as the labor market has softened, we actually saw decline.

in job growth. was negative in June, and then we had some revisions. There’s been significant downward revisions. So the labor market’s been weaker. And so I think the bond market and the economists are saying like, okay, you know, the Powell and the Fed are really looking at the labor market. And that’s the reason for lowering short-term interest rates. So it’s lost due to political pressure, but because of underlying fundamentals. And this is kind of one of those, you know, bad news is good news.

Yeah. Why the Fed is expected to lower rates. And we will get an inflation report this Friday. So despite the government shutdown, if it’s ongoing by then, ⁓ there will be an inflation report. So we’ve seen inflation cooling. It’s tipped up a little bit, obviously, because of increased costs due to tariff uncertainty and then ⁓ negotiations with other countries, but still higher than what they’ve been over the past several years. that will likely be inflationary.

But then also labor is inflationary too. We’re seeing a very weak job growth. And again, we’re kind of flying blind here right now, but even in the months prior, and there significant downward revisions, I think 911,000 jobs were removed from April of 24 through March of 25. just saying, know, and the BLS, Bureau of Labor Statistics does this every year. So this isn’t atypical for them to do revisions, but.

pretty significant downward revisions and say the previous prints were actually not as strong as we initially recorded. So that’s why we’re seeing weak job growth, yet still low unemployment because the labor situation is still pretty tight.

Tony Misura (17:22)

So is it fair to say then, if we look at the Fed rate cut, not to look at that necessarily how that’s gonna affect the mortgage rate, but more what it’s gonna do to job growth and income growth? that’s the larger, so that’s the much larger factor in this. And with the national public builders and the buy-down rates that they’re doing, the mortgage rates will be what they are, which seems to be in a relative, in a relative target range.

Chris Beard (17:33)

Right, exactly.

Tony Misura (17:49)

as you’ve identified, think I looked for a thousand dollar home at a 5.33 % interest rate. I mean, that’s a $2,200 payment, seems, I don’t know, from my perspective, to be reasonable and something that, you know, the broader first-time buyers could handle.

Chris Beard (18:07)

Yeah, that’s kind of what we’re seeing. And the builders are going to continue to employ the rate buy downs. You know, as mortgage rates do come in, ⁓ they will likely make adjustments to the rate buy downs. And then, you know, as we move into next year and move through next year, there likely will be some modifications. But the trend recently of mortgage rates coming down even just a little bit has I think is going to be definitely a tailwind for the industry.

Tony Misura (18:29)

Okay, so let’s see if we can tackle this beast being tariffs, right? So clearly that’s the elephant in the room that’s got this really large impact over the inflation projections and certainly the 10-year bond. What are your thoughts on the tariffs? Are these really a one-time expense? And just help us kind of understand this.

Chris Beard (18:53)

Yeah, we can debate all day of whether it’s a one-time expense or whether it’s going to continue. There was a lot of publicity when Liberation Day came April 2nd and the tariff announcements were made. And then we had a pause that was announced as well. And so the dust has kind of been settling the whole time. And I say it’s been settling and it’s not really settled because there’s deals worked out.

And we even saw last week or two weeks ago with the new announcement of new 100 % tariffs on China because of withholding of rare earth minerals. deals are being worked out. Just when we think that we’re kind of getting to a point where, all right, we know what it’s going to be, then something else happens, like the 100 % tariffs on China. I was really surprised in the Section 232, honestly, lumber imports.

you know, if I was a betting person, unfortunately I’m not, would have said, I don’t think they’re actually going to take hold. then lo and behold, back in August, the government said, yeah, we’re going to implement section 232 beginning October 14th, which was just a week ago. So those tariffs have been implemented. What’s interesting, the lumber folks that I talked to, and that’s obviously ⁓ hugely important for your dealers because they a lot of lumber and the home builders too, ⁓ we’re seeing

we have not seen a significant shift to Southern Yellow Pine, is US domestic produced lumber in home building. Builders still prefer Canadian Spruce Pine Fir SPF, or even Western US SPF. And so they’re willing to pay a premium. Builders ⁓ seem to be willing to pay a premium just due to the quality of the wood.

and the spread between the price differential between US-based Southern Yellow Pine and Canadian lumber or even Northwest US lumber, which has been pulling higher just due to the increased price in Canada, that’s growing. And so, you know, the builders are willing to pay a premium. I think the latest read I saw was $130 per thousand board feet of paying a premium between Canadian SPF and…

builders and dealers have been saying that we’re willing to do that because that’s the preferred method of what we use. Whether that’s sustainable long-term, I don’t know. And I think, you know, it may be a short-term thing until a deal gets worked out. I know the president and the Canadian prime minister have been talking and so there may be some movement there. I don’t necessarily expect that to stick for ⁓ the three and a half years that we have left of this administration. But again, know, predictions.

predictions are really tough in this environment. And I think, you know, a lot of it was, was onshore production, which we’ve seen, we’ve seen instances of. ⁓ But I think there’s a disconnect between, you know, what is, what can really be onshore and locally sourced versus, you know, some, some supply chains are just resilient. And, and so I’ve talked to a number of importers that have said, look, they’ve been looking at these and make sure they got ships on the water to come here from, and not just from Asia, but, know, from Europe as well.

make sure they got ships on the water to get them here before the tariffs. And one of the interesting things that we noticed in our dealer survey too, is in January and February, we really started to see dealers accumulating inventory. So they were bringing in Canadian lumber ahead of the expected tariffs. And so we saw huge levels of Canadian lumber already in the US. And then right before the Section 232 saw the same thing. There was local inventory building.

And this term that I’ve seen quite a bit over the summer was this wall of wood. So there’s just a wall of wood of literally like walls of wood of Canadian lumber already in the U.S. that’s already been here ahead of any increased duties or tearouts. We saw that in front of the anti-dumping and countervailing duties from September and then ahead of Section 232. Now that’s being whittled away now too. So, you know, we’re not seeing mass importing right now.

You know, it’s tough to plan around. When you don’t know what it’s going to cost, it makes it really difficult to plan. And so I’ve been saying the word of the year for me is uncertainty, just because of the whirlwind of policy changes that we’ve experienced in this industry. It just makes it tough to plan. And the consumers certainly feel that too.

Tony Misura (23:13)

Yeah, uncertainty, certainly. That is the theme. And as we look at the SPF ⁓ ties to the market from a labor perspective, like so many individuals have underestimated labor’s influence over their preference relative to construction. I would think in this day and age with all the immigration factors and

unemployment where it’s at right now. Labor has more control than they ever have.

Chris Beard (23:41)

Yeah, absolutely. that’s something, like I said, our demographics team looks at really closely. you know, we have higher levels of deportations now than we had over the past several years, obviously, because in 22, 23, 24, huge waves of immigrants coming in. that’s the border crossing to the US-Mexico border have effectively ceased just due to policy changes.

But immigration, legal and illegal, has really come down. And I mean, we’ve been talking about this in the industry for a long time. The US population is getting older. like you said, touched on that earlier, demographics, younger people are not getting married, not having children, not wanting children. And so the gap between those people leaving the workforce, just aging out, and those entering the workforce is getting smaller and smaller. And so

I like to say like no matter what happens on the material side, no matter what happens on any other side from a cost perspective, labor inflation will continue just because of the tight, tight labor market that we see. particularly in construction, um, we’re going to be feeling that. And it’s interesting. I was at a dealer conference last week and just talking to dealers and saying, oh, yeah, it’s, it’s still tough to get, get people to come here, even though the labor market quote unquote is softening.

It still is a difficult situation and getting people into this industry. Skilled trades, I mean, we’ve all known about skilled trades for a long time. That’s been an issue for years and years, nothing new, but even general construction labor. And I was talking to one dealer in particular and he said, you know, we’ve been thinking like going, looking at somebody in their 20s or 30s, somebody that we can grow long-term in this business. And now they’re saying, you know, you know what, some of my best counter folks are people in their 50s.

that they’ve already got the skills, they already know a little bit about the industry. And so we’re saying, if we can get 10, 15 good years out of somebody, we’ll do that versus trying to find a diamond in the rough for 20, 30 years or longer.

Tony Misura (25:43)

One of the fascinating things I’ve always found is that regardless of where you are in the world, third world or first world countries, the highest turnover rate, the highest employment turnover rate is always on the construction site. So if that doesn’t scream as an opportunity to all of our dealers out there as to how you can really differentiate yourself and grab more margin dollars, it’s something to alleviate that onsite labor issue.

Chris, what is the annual start average now going for? Like since World War II, we’ve always been taught, it’s 1-4, 1-5. That’s the number of starts per year. ⁓ There are some out there that believe that that’s changed dramatically. And then some, not so much. Help me understand what we should be basing a good year, an up year, and a down year from.

Chris Beard (26:36)

typically, you know, so think a million ish give or take single family and then and then anywhere, you know, in the 400,000 for for multifamily got manufactured in there then to, you know, that’s so we look at we look at, you know, we’re thinking, you know, one for ish including manufacturing this year, roughly flat for next year, we think multifamily is going to be up next year.

and then slight uptick in 27 and 28. So not expecting a dramatic drop off from what we’ve seen, but also not rapid increases. And so ⁓ one of the things that we look at too is demographics. And so we’ve actually run some scenarios around the impact of immigration, the impact of deportations, and we see a significant growth in population.

of ages 70 plus. And so we’re thinking like through 2034, significant growth in those that are 70 plus. And then also growth in population of 25 to 54. So 25 to 54 is typically your household formation years. We like to think of it and say, you know, this, we think this is actually going to probably drive suburban housing growth. Because, you know, when people become of that age, 25, 54,

They are getting married, having kids, single family demand is gonna increase. And so moving out into the suburbs a little bit too. So regardless of what happens to single, know, immigration and everything, we think there’s gonna be a million-ish households formed through 2034. Just because, you know, ⁓ we’ve got a big cohort of people in those age groups and you think 70 plus, okay, well they’re exiting home ownership. And the reality is, you know, eventually they will.

but with increased life expectancies, people staying in their homes longer, the modifications that are being done, multi-generational living too, that we think is gonna increase in importance. We’re not expecting like you would see in typical periods or let’s say 10, 20, 30 years ago, when people saying, all right, 65, 70, you’re gonna move into a retirement home, not necessarily to those levels.

that’s probably gonna prevent a big wave of existing homes of 70 year old entering the market. despite the population change and demographic change, we’re still thinking roughly a millionish households formed every year through 2034.

Tony Misura (29:05)

That’s a pretty strong number. mean, that’s something to really plan and build around. And 1-4, mean, 1-4 has been the average. So you see this being a sustained number continuing. I mean, Harvard Housing Report kicked out something that was completely different. And help me with the numbers on this. But I believe they projected, was it 800,000 starts?

and then dropping after 10 years to that to 500,000 starts?

Chris Beard (29:38)

Yeah, there’s some, Harvard does outstanding work and we love talking to them and working with them too. We think that part of the issue is ⁓ life expectancy. Like I said, we expect life expectancy to increase, but then also just looking at where people are moving to. So I alluded to earlier, the Sun Belt’s gonna remain strong, the Southern regions.

And so those migration patterns, and if we look at the housing stock in those regions where people are moving to and want to continue to move to, we think that’s still gonna create demand in those regions. And so I think the example that our demographics ⁓ team lead, Eric Finnegan, does great work, ⁓ he’d be a great one for you to talk to on the podcast too.

thinking about demand. If a house goes for sale in Northeast and there’s nobody there for it, okay, because the demand is in Georgia, they’re Carolinas. we think that that’s gonna be probably a stronger tailwind for home construction in coming years.

Tony Misura (30:40)

Well, terrific. That’s great. That’s that’s those are really nice bullish numbers for everybody here to for everyone to hear and plan around as they as they as they go forward.

backlog, the backlog of homes, right? Or I should say the how far we are behind, from a home construction. That number is, mean, geez, there were years where it was five, seven million. Like, what do you think? You guys have a peg on that number?

Chris Beard (31:05)

Yeah, our take is about 1.1 million, ⁓ too few homes right now. And again, for the reasons I alluded to of where these homes are located, we think we’re about 500,000 too short of for sale homes right now, and then roughly 620 for rent. So homes that are available for rent. Obviously in the GFC, leading into the GFC, we had a surplus of homes and that’s one of the reasons for the housing collapse. But really since the

mid teens, we’ve had a deficit. We’ve had a deficit of homes and we’ve ⁓ chipped away at that deficit over past few years, again, just as the market’s been softer. And there was a lot of for rent inventory that came on the market. so especially apartments, thinking back to 22, 23, 24.

And a lot of that was taken up by the wave of immigration that we had in those years. So that really propped up multifamily and especially apartments in those years. And so we have made improvements in that. And we’ve seen that deficit grow smaller, if you will. So, you know, a couple of years ago, it was significant. I don’t think we were ever in the five million. I think I saw something recently that somebody was up to seven million, and we’ve never thought that we’re that high. But we think roughly a million right now.

Tony Misura (32:22)

So, if we’re a million behind and we’ve got a million in household growth formation that’s going to be perpetual, you know, year over year, that creates a pretty strong demand for our industry space.

Chris Beard (32:33)

It does. So we’re pretty optimistic about, once we get through this cycle right now, we’re pretty optimistic about the trends that we’re seeing, like I said, through 2034, just to the household formations. And then, you know, who knows what’s going to happen with immigration after 2029, too. We’re expecting a slight increase there. And I think once things stabilize here, we’ll start to see a rebound. So, you know, we’re pretty bullish on this industry through the early 2030s, mid 2030s.

Tony Misura (33:01)

Yeah, and the US does need profitable, healthy immigration. hopefully we can evolve to that on the other side of this. So existing home sales, thoughts on that? Is there a number there that you see from an interest rate perspective? Of course, you don’t have public builders buying down those rates, right? But what are your thoughts on existing home sales for the move up market?

Chris Beard (33:23)

Yeah, the well the move up custom markets a little bit different because they’re not as price sensitive to interest rates. And that’s one thing to touch on on home new homes right now. You know through the second quarter we only get data on a quarterly basis, but through the second quarter custom homes were actually positive year over year. So this production builders have been down single family starts as a whole down, but custom move up have been slightly positive year over year. So. ⁓

Existing home sales obviously have been pressured. We had a lot of people that refinance before 2022, really low mortgage rates. And so there’s roughly 52 million mortgages outstanding. And so the wave of people that the rates below 6 % is I think it’s like three quarters of outstanding mortgages or rates below 6%. So that’s had what we call lock-in effect. And so our latest readings, roughly 20 % have mortgage rates below 3%.

over half have rates below 4 % and then 72 % have rates below 5%. So if you’re thinking, you know, you’ve got a 6 plus percent mortgage and you’re sitting on a 4 % or even a 3 % mortgage right now, you’re going to think twice about moving. So that lock-in effect has remained relatively consistent. As rates do march down, and like I said, our research shows that the magic mortgage rate, quote unquote, if you will, is around 5.5 % when people would consider that.

As rates do move down, we think that will impact existing home sales. But existing home sales have been pretty anemic over the past several years, because if you don’t have a distressed sale or ⁓ life things happen, people are just contemplating saying it cost me a lot more money to take on a new mortgage. Now, will that diminish? Absolutely. We are, I think we call it past peak lock in effect. So obviously over the past three years, mortgages have been underwritten.

people do have 6 % mortgages because they have transacted. But that’s probably going to be a governing factor on existing home sales for the coming years. And so we’ve been thinking that’s probably a tailwind to remodeling. because people are in their homes and say, know, all right, I’ve got a 3 % mortgage. I don’t really want a 6 % mortgage. So I will spend some time, spend some money on making improvements to the home that I have.

And interestingly, we haven’t talked about this with interest rates, but as the Fed lowers short-term interest rates, that’s going to drive down home equity lines of credit. So that’s going to drive down HELOC rates because they’re more tied to the short-term rate. So we think that there probably will be an uptick in people taking out HELOCs. Now, whether that’s going to be used for true large-scale home improvement remains to be seen. Traditionally, home improvement is paid for in cash or financed in some way besides HELOC.

but that is likely gonna be a tailwind. Now, the magnitude of that tailwind I think is TBD, but we do expect increase in HELOC withdrawals simply because home values have gone up so much since 2019. And if you bought a home before 2020, I don’t care where it is, you’re sitting on a massive amount of equity. And so that’s equity that can be tapped into and near record levels of home equity, even as

prices have come down a little bit. ⁓ Homeowners are still sitting at massive levels of equity and we think that as short-term interest rates come down, HELOC rates come down, we will start to see people tapping into that more.

Tony Misura (36:55)

That makes complete sense. And again, another exciting bullish read from market perspective is, you know, the renovation remodels three to four times the size of the new construction market. So that’s another we have more great news, Chris. This is fantastic. Yeah, a few weeks ago, I kicked out an article that said, hey, you know, rather than, clutching your pearls and wrenching your hands over over what the Fed’s going to do, just take a look at at a couple of public stocks and.

to get your best indication of what’s going to come in the future, And at the time, know, Dero Horton’s stock went from 120 in June up to 183 in September and Lenar Horton, Lenar’s went from 105 to 142, which was, you know, 30, 40%, you know, increases. I kick out the article and within days, their stocks all corrected back 20 % drop back down, Which clearly is-

early optimism and now we’re kind of like, I also had Home Depot stock in there, 350 to 425, now it’s at 390 and United Rental, which has been really steady. It’s gone from 700 to 960 to 1000 today. I’m really curious, from a dashboard perspective, if we’re going to try to help dealers and two-step post-delivered distributors across the billing-prox supply chain,

kind of develop their own dashboard. Any recommendations of what they should be looking at?

Chris Beard (38:24)

You know, it’s obviously every market is localized. So national numbers are great. They give a national picture of the overall macro. And certainly that does play into what’s happening on the local level too. But really, you know, talk to your builder customers, talk to them what they’re seeing. It really is a regional perspective, but really it’s a market by market perspective. And you can get, we do have…

Pretty substantial research on the top markets in the country would do forecast on job growth. That’s obviously a big driver because if people are adding jobs, then people aren’t necessarily moving to those regions too. So job growth, I would look at permit history and there’s some, and we do forecast ⁓ single family, multi-family permits and single family, multi-family starts for most of the major metros around the country. That’s something that we offer. So people can get in touch with me if they want to find out more about that.

But really it’s just looking at wage growth and then, and obviously the affordability piece of it. So the affordability piece is even if rates are coming down, affordability is still a big driver too. And so that’s going to dictate, you know, is there going to be more for sale or more for rent? But really it’s just looking at, what are people doing? Are people getting hired? Do they get raises? Are companies that are in those regions expanding, contracting? And ⁓

There’s a lot of public data, but like I said, we do quite a bit of digging deep. We have people on the ground in most of the major metros and do these types of things all the time too. So it’s just looking at the macro, things that drive the macro or what’s driving things on a local basis too.

Tony Misura (40:02)

Terrific, that’s excellent. That’s great advice. And to think that the outside sales teams for all these organizations that are engaged with their customers to pull that data, to pull that real-time information as to what those trends are in the marketplace makes total sense. Terrific. Well, thank you so much. I’ve got to touch on this though. So you’re a traveler and we’re talking a little bit about your plans to visit Vienna. Please share with us.

Yeah.

Chris Beard (40:30)

⁓ So we ⁓ my wife has always wanted to visit a European Christmas market and and I lived in Europe for nine years I went to school in Germany and Lived in Europe for nine years and so I’ve seen Christmas markets, but it’s been I don’t want to age myself But let’s just say it didn’t have a two in front of the number when I when I lived there sure so so I’ve been traveling quite a bit for work this year and I said, know what? Let’s let’s take a look and see if we can find some some

Tony Misura (40:50)

Yeah.

Chris Beard (40:58)

good places to go. So we are going to be leaving right before Christmas. We’re going to go ⁓ to Vienna for a week and then we got an overnight plan to Budapest. So that’ll be fun to see as well. just, we’re just going to take a train there. And so we’re going to fly, fly into Vienna, stay there a few days, take a train to Budapest for two days, and then come back and come back to the U.S. So right before Christmas, so we can have our family Christmas here. But Vienna has a ton of Christmas markets and

We’re not exactly even though we live in Iowa. We’re not exactly fans of the cold And so I’ve prepped my wife and said yeah, we’re gonna be doing a lot of walking out outdoors So we got to get boots and coats and be ready to bundle up, but I’m really excited Never never been to Vienna at a Christmas market setting and so we’ll see what’s going on I hope the dollar gets stronger by then because it hasn’t been so far

Tony Misura (41:47)

Right? That always helps. Well, I’m super excited to hear how that how that goes. it’s on my bucket list. I’m not that well traveled. Did get to Portugal this past this past year. So.

Portugal was fun, did the Douro River and the Douro River cruise and really enjoyed it. was a great trip. But ⁓ the Christmas markets, I mean, that sounds fantastic. And then to have Budapest too, which is just a completely unique cultural experience.

Chris Beard (42:17)

Absolutely, we’re looking forward to it.

Tony Misura (42:19)

fantastic. Well, thank you so much, Chris. Again, John Burns Consulting. We’ll make sure we’ve got all the information so that our listeners can reach out to you for excellent, excellent macro data as they’re scrambling to pull together their strategic budgets here. this last quarter, that’s trend and theme that everyone’s working on, right? Trying to figure out exactly what they should prepare for in the future. And you’ve given us a really nice, a really nice bull case. Thank you so much.

Chris Beard (42:44)

Yeah, my pleasure, Tony. Thank you.