First of all I want to start with your take on where the housing market is right now. We've seen some slowing even this week with
some new housing sales as well as existing housing sales. Sure that first thank you so much for having me on the show. Why
don't I just give you a little anecdotal evidence of what we're seeing in the field right now. Our home sales are down about 15
to 20 percent but that's a headline number. And I think I'll be helpful to kind of dig a little bit deeper into that number. The
reason for the most part it's down is because we can't deliver homes. We're still having tremendous supply chain issues. Also
we find that a lot of homebuilders are actually holding back on the number of homes they want to deliver. And that is for a
couple of reasons. One. Inflation because costs keep going up and they don't know what it's going to actually cost to finish
the house and to they want to write up the home price appreciation. So I would say for the most part right now while
we see a 15 to 20 percent slowdown in sales year over year a lot of that is because of other extraneous issues. It's more of a
delivery issue. That is a demand issue. With that said we're definitely starting to see a pullback. We're starting to have to
go deeper into our wait list. But every house at this point that we deliver in the markets we're in. We are selling. I think we
have to be careful about what what we see on a going forward basis because definitely we're starting to see things slowing
down. That's a really helpful way of putting out because we're having those discussions about the overall economy. Is it
supply. Is it demand. As I understand you've got a supply problem because the supply chains people say that's going to go
away. Is it going away in housing. Well it's not. I mean we definitely have issues. We have
problems getting trusses and windows and appliances. We're delivering homes with plywood windows at times. It's we're
having all sorts of issues. And of course you know the war in Ukraine and what's going on in China and work stoppages there
the deliveries and transportation is an issue and jobs are an issue and trades are an issue. So it's gotten marginally better
but we still have tremendous supply chain issues. And look if you look at how many houses we're delivering a year in total
this is all all forms. It's about one point two million housing units a year which is sort of in equilibrium.
So Tom some of the issue can be on the demand side at some point we've heard about mortgage rates going up to what 5.5 percent
something like that. So that must affect it to some extent. Are you seeing some effects with that. Because we also have the Fed
is going to start selling off some of those mortgage backed securities. Yeah for sure. I mean look the consumer stretch so
why they stretch a stretch because of inflation. So we have all sorts of issues we have. Gas prices are more expensive and we
have costs of food is more expensive. And of course as you point out mortgage rates are an issue so that consumers stretch.
And that is certainly going to be an issue on a going forward basis on housing. What we are seeing you know people taking less
options they're going to slightly smaller unit types and they're renting. So we aren't necessarily seeing a slowdown at this
point because of mortgage rates. But again I think we have to be careful. I think you know the crystal ball says it's going to
get a lot worse. We're not seeing it today but I think in the future we're going to see a slowdown. And as I mentioned the 15
to 20 percent or so we're seeing year over year decline at this point isn't a demand issue. But I think we shouldn't kid
ourselves that we are seeing again the traffic's down in a lot of our communities. It is starting to slow down. So I think
we're to start to see the slowdown come in the next couple of quarters. When you say things are going to get worse. A lot of
us go back to 2008 the last time we really thought hard about a housing crisis in this country. And there are some anecdotal
incidents where it sort of feels like 2006 2007 where people are outbidding each other. Houses are going way above the asking
price. Are there parallels with what happened in 2008. It's a May.
It's really really good question. So so why don't we go back in history. Because I think you know we really have to analyze what
where did we end up in a way and why did we end up there. So if you if you look back to 2005 we produced two million housing
units. So in general we produce one point two million households a year. What's a household. Your kid graduates college and moves
into an apartment. A couple moves out of their parents house and they and they take an apartment there's a divorce et cetera. And
that creates a need for housing units. So against a total need of one point two million units we produce two. And then it did
slow down. Remember after 0 5 even before the GFC we started to have a housing slowdown. We still produce one point five million
housing units. So we had a massive oversupply going into. Then a demand shock. So it was really the perfect storm.
And that is why we end up with the global financial crisis. So in those days we just had a massive oversupply and we had and
then we had demand just fall through the roof to shoot me fall to the floor. So that is that is why we ended up in the GFC and
that's why we ended up with a massive oversupply of housing at that point. People thought there'd be 8 or 9 million
foreclosures. We actually didn't believe that number because fundamentally we don't believe that if your house goes below
your mortgage value by 5 or 10 percent that people are going to walk away from the house. So we actually at that point started
to buy housing lots. Why do we buy housing. Lots. They have tremendous convexity at the home. Price goes down 10 percent.
Housing lots go down 20 percent. There's some point where if you're going to build a house across two hundred thousand
dollars that's worth a hundred eighteen thousand dollars. Lots of theoretically worthless. Although of course I have some
option value. Household formations also drop through the floor and that's because people doubled and tripled up. People moved
into their friends basements. There was such tremendous unemployment.
So we started to see that at some point when the housing recovery happened and the economy started to recover. People
would start to move out of those units and create households again. So that's why we did it. And we thought it was the best
way of recovery. So fast forward to today. Today we have the last time mortgage
rates were at this level. We had a million more housing units. We have a lot of markets
one to two months of supply. So right now supply is not an issue. We have very very little supply in this market. But a
force you know we're looking at the demand side now. And as you point out mortgage rates are up. As I said the consumer is
stretched. So there's no question that there's going to be a demand shock but there isn't a supply issue that we had in a way
which is why we feel pretty confident that we're not going to see a GFC type situation in housing as we did before. Now look
we have a lot to worry about. We're clearly heading for its recession potential recession with stagflation.
So there is a lot in the economy we start to see. It's the summer's pullback. We're starting to see corporate earnings come
off. You're starting to hear about potential layoffs. We're starting to hear about about jobs doc you know jobs being
decreased and as well as wages going down which is all problematic. So Tom Keene on Wall Street we'd like to get some
free investment advice if we could. So given all that you just said worthy investment opportunities I know recently you said I
believe you want to sell old and build new. Is that still true. Yeah for sure. I mean we think I mean I say a couple of things
that we're looking at right now. We're very concerned about older housing stock particularly in multi-family farmstead
apartments. We think that people don't necessarily want to live in those type of units today. People clearly in a post pandemic
world are going to have some level of work from home. And given that they're going to work from home they need a different type
of unit. So we're doing a lot of what we call build to rent and actually single family homes and a whole community where they
are all for rent. They could be two three hundred units of single family homes. That could be one better. Generally the one
bedrooms are for joint but they have a little backyard choosing three bedrooms for the really nice amenity package including a
shared workspace where if the couple is in the is in the house and one needs to be on Zoom and the other one needs to be doing
work they can actually go into a show and work environment. So we are we are definitely looking into that. We like that a lot.
And that also I'll throw off their rents. So look as things get more expensive for buying. We think and rents have gone up as
well. But we do see really strong demand on the rental side. Again we're starting. We still see very good household
formations and people will make a lifestyle decision first and a financial decision second. So they'll decide I want to be in a
house I want to have an apartment I want to be in a mobile home. So they make that decision first and they say I'm going to buy
or am I going to rent that. So we're seeing more and more demand on the rental side. So a lot of what we've been shifting to we
still do a lot of homebuilding and we still really like that sector a lot. But we're also looking at built to rent
communities as well because we think that more and more especially as mortgage rates go up we're gonna see more people
renting. And we are in a sort of Uber Bambi generation where people like to rent things and honestly own things as well. So
we're not seeing the same desires of homeownership as we did in the past.