New Home Insights Podcast Episode 57 Transcript | John Burns Real Estate Consulting

Episode 57: Remaining Competitive in an Overly Competitive Market

 

Transcript

Dean Wehrli:

Hey, welcome to the New Home Insights Podcast by John Burns Real Estate Consulting, I’m Dean Wehrli your host. Each episode we’re going to bring you some of the best minds in the housing business, talking about some fascinating topics, or a trend, or innovation, or issue, just like the one you’re about to listen to. Enjoy. Hi, this is Dean Wehrli with New Home Insights, the John Burns Real Estate Consulting Podcast. Today we have a guest from Starwood Land Advisors, Mike Moser. Mike, how are you doing?

Mike Moser:

I’m doing very well, Dean. How are you?

Dean Wehrli:

I’m good. Today we’re going to talk a little bit about, well we’ll pretty much focus on land and of course the residential market and development. Maybe get into a little bit about build for rent, just a bit, at least in certain terms of how they compete within the land environment. And also talk a bit about Starwood. So let’s start there, Mike, if that’s all right. Just tell us about your role there, and even maybe a little bit of history of Starwood Land going back to I think 1991 in the S&L Crisis, and how you came to where you are today.

Mike Moser:

So great. Thanks Dean. So I spent 13 years at what is now known as Taylor Morrison, I was there from about 1994 to 2007. And when the last big recession hit, I was running our land development division and our high rise tower division. And so we kind of got the message very early in both those departments, that the recession was going to be of epic proportion. So I immediately pivoted and went out and started to raise money, and find friends that believed that the recession was going to be an epic opportunity. And as you just mentioned, Starwood Capital has always had kind of a contrarian in a special lens, to look through with recessions and recoveries and so forth.

Mike Moser:

And so we interviewed with several different private equity groups back in -06, and towards the end of -06 we kind of determined that Starwood was going to be a great resource, and would invest in the darkest of days. And that’s exactly what happened. So Starwood Cap had a contrarian view, as did we. We were kind of predicting 25-30% home price decline back in -06. John Burns and I were just getting to know each other and respect that, and he thought, “Wow, you guys really think things are going to get ugly.” And as we all know now, with the benefit of hindsight, in many locations that was underestimating the impact.

Dean Wehrli:

Remember Mike, remember all the soft landing conferences, and talks, and headlines like, “Oh, come on, it’s going to be a soft landing.” And that was always a pipe dream.

Mike Moser:

So I’ll remain unnamed, but our second choice of equity was a different group that is a very famous individual, and he said to us in late -06 he said, “Hey, this is going to be very, very ugly,” he goes, “But the initial deals that come out when the recession starts,” he said, “You’re going to think they’re really, really good deals.” He goes, “But then it’s going to drop another leg in a big, big way and then you’re going to start to buy deals.” And he is 100% right. The stuff that we bought in -07 and -08, pales in comparison than the stuff that we bought in -09 and -010. The stuff we bought in -010 was simply magic. You really bought stuff for 10 cents, 15 cents on the invested dollar, and so that was a great business plan. It’s not today, it’s not realistic today. And Starwood Cap has been a great group to evolve with.

Mike Moser:

So we’ve been exclusive partners for 14 years, and doing residential land development and truly being a spokesperson, and helper in anything residential to Starwood Capital as they have invested in numerous other platforms. They were one of the founding partners of what’s now known as Invitation Homes. They obviously formed and founded Tri Pointe Homes. And so they’ve been a great partner for us and we feel we’ve been that kind of reciprocal partner for them, and kind of boots on the ground type intel of what’s happening in the land and home building world since -07 really.

Dean Wehrli:

Yeah. You do have that kind of partnership because I think of you guys as land and money, and that is a great relationship with Starwood Capital.

Mike Moser:

We’ve been very lucky in that respect, and we’ve got a great team here at Starwood Land with our back office is extraordinarily strong, and so we’re able to report in the private equity way, and provide as much granularity and detail as they like. And I think that combination of money and talent as it relates to the development side, we’ve got offices today in Florida, our main office, Starwood Land’s in Florida, we have a small satellite office in Denver and one in LA. So we can actually move and pivot and provide intel in a lot of these markets. Obviously, the John Burns relationship helps too, so we’ve been very lucky with that one. But we’re able to provide that intel and a sophisticated at the typical private equity level that they would expect.

Dean Wehrli:

So as we talked about, kind of with the S&L, you guys really started honestly, by taking the stress in the market and turning it into something of value, and seeing that vision just a few years later. Is there any part of that approach that you can still do today, or are things just so completely different your approach has to be radically different than what it was those years ago?

Mike Moser:

It truly is dramatically different now. In fact, when we first partnered with Starwood Cap, there were many people that would say, “Oh, we have 100 million dollar fund to acquire land deals.” Well, now they have a billion dollar fund or two billion. And so Starwood Caps Fund XII I think is 10 billion in equity and probably at least that in debt. So the world has grown exponentially as to the size of deals and flows that are out there. And distress does not exist, so you’ve got to really try to find what we add value to. And in the residential business, what we add value to today, is a big portfolio where we could multitask across numerous markets. There’s only a handful of developers that are actually doing it in multiple states at the same time, and so that’s a way we are being able to pivot. And underwrite a tremendously diverse group of assets. When 2018 we got in a nasty bidding war with D.R. Horton on that Forestar transaction, and as the world knows, D.R. Horton won the battle, and they ended up acquiring Forestar.

Mike Moser:

But that was a very unique company that had oil and gas interest, and timberland and multifamily apartments, and a fair amount of residential communities too. And so with Starwood Caps, oil and gas team, and our resi team, and multifamily teams all combined together, we were able to do that very, very quickly and value that company. Unfortunately, the folks at D.R.  won that war. We did win a little bit of the battle, we were able to buy 21 assets from them, for about $230 million at the end of 2018. And so we’ve developed the vast majority of that portfolio out now. So it is-

Dean Wehrli:

So is that kind of a key appeal to you, a target that might have sort of varied interests and sectors within various real estate?

Mike Moser:

That certainly sets us apart, because Starwood Cap has just about every vertical that’s out there, industrial and commercial. So we can compete on a very diverse group of assets at one time, so that makes them an even better partner from that perspective. Truly the land space, you were asking earlier, is it different than distress cycle? Yes, there was recently a large tract in the western half of the United States that was broadly marketed, they had 10 offers north of 200 million for a one master-planned community. And so that would not have happened 10 years ago, obviously.

Dean Wehrli:

Mm-hmm (affirmative). No, it does seem like anything is fair game, we’ll talk about land in a bit that’s coming out. But when you approach an investment or potential investment, do you have kind of a template approach, or is it very case by case, opportunity by opportunity?

Mike Moser:

Yeah. If it was programmatic, it would be easy, but there’s nothing easy. And every deal that we look at today has tremendous amount of hair and complexity on it. And so, if it were not hairy and complex, the big public builders they have access to extraordinary amounts of capital, and the privates that are left are typically well financed as well. So you can’t discount them just because they’re privately held, they have access to big dollar. So if it’s a mainstream type land deal anywhere, call it 1,000 units even, the competition amongst the builder group is robust. And so that makes it difficult to leave your developer margin in the deal. So our deals will typically have some entitlement issues, or redevelopment plans, or various complexities to them.

Dean Wehrli:

Is it kind of a button down approach and heavy on the quantitative? In other words, do you have to show, here we’re going to get a specific return, we’re going to show that with hard numbers, or do you ever approach things with your gut to kind of go with your gut a little softer outlook?

Mike Moser:

No. I don’t think much of our stuff is gut. It’s more truly qualitative information, that is something that we know what land is trading for, and what builders will pay for lots, or what multifamily folks will pay for a door on an apartment complex, or what commercial space is going to sell for industrial. We will take our very best guess, at all the complexities in that specific project. And truly support and analyze comps in and around that area. But again, we do need the project to be complex, with multiple disciplines to be competitive. And so we are uniquely qualified to underwrite and evaluate all those complexities. So that is one of our focuses, is trying to find those deals that are big and complex, but also we can underwrite them, we’re not going to use the term precise, but with very good measure.

Dean Wehrli:

I’m glad to hear you say that, because we’re a consulting company and a research company. So it’s good to hear you say that, you want to have some evidence behind it. But there is that developer, that old school kind of developer image of cowboys and stuff like that. Is there anybody out there who’s approaching this cowboy style in your space?

Mike Moser:

Oh, there are a handful. I don’t see it institutionally, any of the public builders or anything of that. But there are some sophisticated local people in each one of these markets, that will take true entitlement risk, close a piece of land. And for example, it’s outside the urban service line, and they would take the risk that they’re going to get the urban service line moved. Well, that’s not typically what the public, or the big private builders are going to do. So each one of these markets has kind of a well-heeled private investor, that will take some of that risk. I don’t see it from an institutional grade, but locally, you’ll run into those people in a lot of the big MSA’s especially. Pick a city and there’s typically one or two guys that have access to capital, that will just close on a piece of property that is kind of path of growth, something like that.

Dean Wehrli:

Yeah. Let’s stay on the development part here just for a minute. You hear a lot at conferences and whatever, that everybody is kind of afraid of development, of entitlement, of risk right now, but you’re just telling us that’s a pretty competitive part of your world. Do you know who those competitors are going to be? Is it a fairly finite number of actors, but those actors are really, really competitive, is it that kind of environment?

Mike Moser:

You definitely know who you’re competing against, and it’s a very small industry. So yes, you’ll be able to predict eight or 10 of your competitors on the deal that are out there. And so yes, it’s competitive but there are certain groups that as you said, just will shy away from a substantial amount of the development work and every market is different Dean, as we’ve talked about. Some markets have rock and stone, and that gets to be very, very expensive, or in California you have entitlement issues that can be years not months. And so those are risks that if you haven’t done it before, you can easily get caught. And so that’s where we kind of use our… We have enough gray hair guys including myself in the room that…

Dean Wehrli:

You said years for California, you said months and years, throw in decades as a category as well in California because that can happen.

Mike Moser:

I think that has happened. And we are unfortunately aware of that too, personally, so we get it all too well. We like the southeast United States a lot. The opposite of them, right?

Dean Wehrli:

How far back in the entitlement process are you willing to go on the food chain? Will you go, I mean, just absolute pure raw land, are you even attracted to that?  Or would you prefer to be a little further up the stream?

Mike Moser:

It’s all about the risk, and the propensity for entitlements, if it’s a true unentitled tract, then the price would be commensurate with that. And so, in every municipality, it’s different as to how many months or years that equals, right? And so in a lot of our markets, if you bought an unentitled tract, you should be able to get to earthwork and call it 15 to 18 months. And so, would we buy that? Yeah, very likely, we would.

Dean Wehrli:

So do you like predictability? You know the timeline, even if the timeline is a little bit long, as long as it’s predictable, is that a positive for you?

Mike Moser:

And we would need to be comfortable with the municipalities. And having done business, and seeing the processes and making sure that they are actually performing and tracking and keeping these projects on a roll.

Dean Wehrli:

Where are you focused right now in terms of your locations, your geography?

Mike Moser:

So as I said, we have a few deals in California that we’re managing on behalf of Starwood Cap right now. We actually have assets in Arizona, Colorado, California. We’re pretty long Texas right now. A little bit left in Florida, Tennessee, and the Carolinas really is the primary base of the holdings. The biggest single position would be Texas right now.

Dean Wehrli:

Okay. So pretty sun belty. Would you consider, if you heard of something in some other location, would you consider or do you have a pretty defined footprint and you’re not going to stray out of that?

Mike Moser:

No. We’re pretty flexible, we’ll go to a lot of locations. But one of the key things for us is, we do not do vertical improvements, so we are not a home builder. We are a land development team, and we want to be where we have numerous choices of builders. So a lot of the markets that are kind of small markets where you don’t have publics and you only have privates, it’s truly the market for land and development. There’s two types of markets in our eyes, is one that’s got a lot of heavily traded, publicly traded builders and a lot of big, well financed like a Tampa and Orlando, a Dallas or Fort Worth. And then there are markets that don’t have that component as much, and that would be like a Kansas City, something like that. And so the number of exit strategies in a Kansas City are different than they are in an Orlando, or a Phoenix, where it’s a proverbial food court of builders. And unfortunately, the competition for that land because of that food court, is very, very intense.

Dean Wehrli:

Yeah. It’s really analogous to home builders who their buyer pool is home buyers, your buyer pool is home builders, but those where there are lots of folks in the buyer pool, it’s a really competitive environment.

Mike Moser:

That’s a critical component to know, to every project you do you got to know, how many builders are in this sub market and are going to be in this sub market. And we’ve seen it change where, in any kind of a recessionary move, a lot of times our builders will pull out of certain markets. And we’re here in Florida, Vero Beach is an example, we bought stuff in the distress cycle that truly D.R. was the only one left building over there, and there was one other private builder. And so when you’ve got one horse to choose from, you can guess who’s setting the terms, it’s certainly not you, as the land owner, right?

Dean Wehrli:

Yeah.

Mike Moser:

Now there’s 10 of them over there.

Dean Wehrli:

Yeah. It’s Halloween season pretty much, would you consider a haunted swamp plan, or a Native American burial ground, potentially, does that deter you?

Mike Moser:

No. We wouldn’t be on that.

Dean Wehrli:

I’m kidding, I’m trying to get in the Halloween spirit here. In terms of housing product, would you do anything or you focus on single family? You mentioned you had a history a while ago in high rise, mid rise, would you do that?

Mike Moser:

We would. As you saw though, the Surfside condo collapse, which was a horrible tragedy, has truly changed condo development in Florida for the foreseeable future. So it is our home base here, and we’re careful not to compete with Starwood Cap, they have a tremendous amount of multifamily of experience and intensity. So when we do come across a good multifamily track, we’ll typically partner with the Starwood Cap guys on their multifamily team, and let them develop that out. But we’re looking at multiple tracts that are now, we kind of call them horizontal multi-families, which is really the build to rent product that is out there, more cluster design, not three units to the acre, more like seven or eight units to the acre.

Dean Wehrli:

Now you’re involved with Starwood on the build for rent the BFR side kind of at the fringes a bit. But you predicted, don’t be humble, about three years ago, that the build for rent folks, would be able to pay top dollar and outbid anyone else. That’s come true, it’s a given now, why is that so, what are the mechanics of that?

Mike Moser:

Well, a lot of the build for rent folks are trying to acquire as many land deals as they can, and houses as they can. And so just the scarcity of supply as you guys all report regularly, the average month’s supply of resale homes is probably two across most markets, where it should be six or eight months supply. So a lot of that is because the build for rent folks are buying those houses up. And so as their supply has dwindled, they’ve gotten more creative. And now American Homes 4 Rent got their own home builder, they’re out buying land, and numerous people are out buying their own land tracts. And so they’re actually designing product that I don’t find necessarily attractive, but it’s attractive to the renter, it’s a single family product, it’s detached in many locations, but it’s yielding four to eight units per acre, versus the traditional always of doing things, of Single-Family Development, you would get two and a half, three units per acre.

Mike Moser:

So, it only stands to reason if the guy doubles the density, he’s going to be paying a lot more for that land. So if you’re a land seller, John Q farmer out in Osceola County, and the guy said, “Hey, I’ll pay 90,000 an acre,” versus the public builder who wants to pay me 50,000 an acre, you just don’t have to care what he’s going to do with it. So those guys are paying up and can do it. And it makes economic sense for their business model. So it’s not they’re overpaying, it makes sense for their model. It’s a different model-

Dean Wehrli:

I was going to ask that, and do you ever feel at all there’s a little bit of froth in there, and that there is maybe too much money chasing that space, or is that not so?

Mike Moser:

There’s way too much money chasing that space, I’m confident of that. I joked at one of John’s conferences about three years ago that, on the residential land business, I feel like I’m swimming in a hot tub full of cash. And I just have no projects to spend it on, because there’s $10 for every $1 of good deals that are out there. Today, that hot tub has become an Olympic sized swimming pool. And half of the pool is the build to rent folks. And so there’s $1, and now there’s $100,000 available for it. So there’s tremendous appetite for that product, and I’m not so sure all of them are going to get satiated with their demand. So it’s creating a bit of an anomaly on the land environment. And we’ll see how that kind of plays out in time.

Dean Wehrli:

Well, now you just have to have goggles and Speedos to play in that world, instead of a martini.

Mike Moser:

That is correct.

Dean Wehrli:

Tell me if this is getting too far afield in the BFR world for you. But do you feel like there also might be too many potential operators out there, in the BFR space? It seems like everybody is at least looking at it right now.

Mike Moser:

I think there are several operators, from what we’ve seen, there are fewer that are really, really good at it. And it’s difficult, it’s a very difficult business, that’s why I’ve steered clear of it. We have 14 employees versus several thousands. When you own 10,000 houses, you got to have a couple 1000 people managing that. And that’s just very, very labor intensive, and it’s a hard business to perfect. And so, I applaud those that have created the platforms that are doing it, making it work. And Starwood Cap is on it again, they’re doing it again, and so they’re one of them. But it’s hard, it’s very, very difficult to do, and the operators are finding that out. But they have seen incredible rent increases, and so guys like John Burns can opine better than I, how the sustainability of that looks. But a lot of the rents that I see now are simply eye popping to me than I would have guessed three, or four, or five years ago.

Dean Wehrli:

Yeah. Honestly as a sector, I think it’s here to stay, it’s going to be growing, it makes sense that it’s growing. But I think there will be some folks doing it, that maybe because of their inexperience, or maybe because of just their outlook, just maybe a little overly optimistic, there’s going to be some mistakes along the road here. Just my gut. How about Mike, in terms of markets, do you look at those in that quantitative way, are you constantly assessing markets in terms of where you want to be?

Mike Moser:

We are, we’re very, very careful, because every market is different as you know. We went long Arizona in the recession, Phoenix specifically, and that recovery was slower there. It was a number one market in the country for many, many years in that, -04, -05, -06 range. And the recession crippled it, and we bought stuff that we thought was extraordinarily cheap, and it took a lot longer to recover. And so that was an interesting play, but now, not only has it recovered, it’s actually seen a giant hockey stick in land prices and land value. And so, we were green light there two, three years ago from a residential space, today, we look at that with caution. So I would consider that a yellow light. And so, it’s yellow lighted most like in LA, or a Portland, or a Denver. They’re not red light, we’re not going to block them out, but we’re going to just be pretty careful when we go there.

Dean Wehrli:

And you see, that’s good. It’s a great example by the way, of how much just craziness can play a part in the actual outcome. So Phoenix is a good example. You’re right, everybody looked at Phoenix, I think it was very rational view to look at Phoenix and say, that market is going to come back. But I remember that it took a long time for that market to come back, I don’t think anybody predicted that. And then the incredible strength of that market recently, was also very, very hard to predict. There’s a lot of mistakes that can be made in that kind of timing sequence isn’t there?

Mike Moser:

There really is, and Phoenix was an interesting play. Phoenix started to recover in -011 or -012, And then 2013, I can’t remember the event that happened, but Phoenix took a precipitous drop down again, unlike at Dallas, or at Houston, or Orlando, even. We were selling lots in Phoenix and Orlando at the same time, and it was two separate markets, it was amazingly robust in Orlando, and then Phoenix was kind of like, a lot of builders bought a lot of stuff in -011, -12 thinking, okay, Phoenix is going to blow back up and go back up to that 45, 50,000 starts a year type environment. It’s been a while since I’ve looked at those numbers, but it was kind of tracking, going back towards 15, or 16,000 I remember, and then it kind of took about a two or 3000 blip down. Unlike a lot of markets, a lot of markets didn’t have that blip down.

Dean Wehrli:

And that’s what I mean, that was a rational expectation in 2011 and 12, say, okay, this market is going to continue upward and it didn’t. It’s sometimes funny how flips of coins can impact outcomes so dramatically.

Mike Moser:

It’s certainly hot today, though. It is certainly hot today.

Dean Wehrli:

Especially in the BFR space, there’s nothing close to it.

Mike Moser:

Right. That’s the incubator for that market. And the land prices and lot prices have gone up dramatically. You’re going to see house prices climb there rapidly. And that’s when we’re going to see, where is the ceiling for that product. But I don’t know that we’re there yet, because the folks relocating there are coming out of more expensive places like California, Portland, and so forth, and it’s still relatively affordable.

Dean Wehrli:

Hugely, by California standards it’s immensely affordable. What will be interesting to see, how this whole great migration thing as folks like in the tech space, pull people back in the offices. Will those people still be able to work from home from Phoenix, or not? That’s a zillion dollar question.

Mike Moser:

Yeah. We see it in Florida too, I think there’s a tremendous influx right now. I was just having lunch with a higher end builder in the Tampa market and he just said to me that, 50% of his buyers were relos from the northeast. And so that’s up three-fold from what it was three years ago. It used to be 15, 20%, and now it’s close to 50% relo out of the northeast United States. That’s a huge number for Tampa.

Dean Wehrli:

That’s a huge number, and the question is, is that a permanent relocation, or dislocation in the market, or is it something that will trend back to the norm? My guess is it starts to trend back to the norm, but we’ll see. How about in terms of the different sectors within residential, I know you’re not directly involved with apartments, but just your sense, do you rank for sale, versus the true apartments, versus BFR, what are you looking after most days?

Mike Moser:

We are truly trying to service the big public builders and the big private builders. We are trying to source a large master planned community, where we could have three, or four, or five builders in the project at the same time. And that’s our specialty, we like to build amenities, build infrastructure, create the place if you will, and bring in complimentary builders to the stack, if you will, and small, medium and large type products. And each community is different, depending upon which builders are in that market. So our focus is really the for sale, kind of resi business. In almost all these communities now, we’ll end up with some apartment land, or some multifamily land, or even some land that lends itself to the BTR guys. And we’ve sold land to multifamily apartment developers as well as BTR folks.

Dean Wehrli:

Okay. I know, this is kind of a hot topic too. As you’re developing a master plan, you have X number of neighborhoods, would you consider selling one or more of those neighborhoods off to a BTR or developer, with the rest being for sale?

Mike Moser:

No. We’re doing that, we just did that in a project in Houston actually. And you’ve got to have HOA documents amended, and you’ve got to be prepared for that, and talk about usage rights of the amenities, so it creates some complexity. And in various markets you have district bonds and stuff like that, that impact the rentals’ economics. And so they’re kind of adverse to that, and so you’ve got to work around those kind of elements. But again, they can pay a premium for that lot that we’re developing. So in our case, as long as we feel that it’s complimentary, it will not be a product that’s going to dilute our builders, that we’re trying to sell retail lots from, and they’re going to maintain and keep things maintained, I think that’s always a critical element with the rentals, is getting comfortable with the maintenance program, that the owners are going to keep in place. So we kind of prefer to deal with an institutional, rather than sell 30, 40 houses throughout the community dispersed to various vendors. We’d rather sell, 100 lots to one group and kind of create their own section, and require a maintenance plan in place with that group. And that lends itself to the institutional investors.

Dean Wehrli:

Yeah. Okay. Does the land market scare you in the sense of, do you worry that there just isn’t enough land for demand out there available entitle-able developable land.

Mike Moser:                                                   

I’ve been saying this for three or four years now, I really believe that every municipality is harder. I joked at the last conference, I said, “Raise your hand if you’re in a municipality, where it’s easier to get things done than it was three years ago.” And of course, everyone laughed, and no one raised their hand. And I was like, “Raise your hand if you’re in a municipality where it’s extraordinarily hard, or much harder than it was three years ago,” and about three quarters of the room raised their hand. So even some of the smaller towns and areas are getting very granular and very detailed, and adding additional costs to these developments, so it’s making it harder. I’ve consistently thought that, a million new single family stats a year is about what could be engineered and entitled.

Mike Moser:

I don’t know how we’re going to ever see 1,000,005 like we saw in, -04 and 2005, 1,000,005 new single family homes. I don’t think there’s enough land in the way, I don’t think it’s been entitled and engineered and can get out of the entitlement process fast enough. And that’s what you’re seeing right now. Obviously you’ve seen a couple of builders report supply chain shortages, I believe the biggest supply chain shortage is land. Now, obviously windows and doors and all that stuff is short as well, and I’m hearing paint now is one of them, but those don’t impact me, but they impact my builder, which then impacts us, because we’re trying to put as many lots on the ground as we can. And as soon as we get them on the ground, they’re bought up. And that’s because I believe the biggest bottleneck in the cycle is land. And that’s the true throttle for how many new home sales are we going see in 2021? I think it’s going to end up below 800,000.

Dean Wehrli:

Wow. And that keeps kind of a governor on supply, which in terms of this market not imploding is a good thing.

Mike Moser:

I think it’s inevitably price increases too, and so we’ve got to monitor that very, very closely. You’re seeing a lot of these markets with 20, 25% home price appreciation in 12, 15 months, that’s dangerous, and that’s dangerous in a lot of spots. So you pick an MSA you know, a Nashville, there are parts there that you’ve seen 30% price increase in 12 months. And so, that’s now getting to a product that’s a $700,000 house. Well, if interest rates kind of, I call it stabilized, if they went back to some sort of ordinary, you and I are of comparable age, we used to think six or 7% was kind of ordinary. I think vast majority of these buyers have never seen anything but three or 4% rates. And so if it popped to five or six, that house that’s selling for 700 today, has got a bad day coming.

Dean Wehrli:

Oh, yeah. It would just jump their monthly well beyond their means. We’re funny, even folks in really high end markets like Silicon Valley, they’re buying million plus dollar town homes. But trust me, those folks are stretched. They cashed out their Google stock and whatever, they’re stretched they’re not putting much in upgrades in there. They’re stretched to buy that, they can afford that million two townhouse, but they’re stretched for that. And yeah, the 3% or whatever market rate, that’s huge for them. Do you think land prices might be too throbby? I think I know the answer to that, but I have to ask, are they fair right now?

Mike Moser:

I think in many locations, and again, even in MSA, there’s 10 locations within Tampa, there’s 10 spots you could buy land. I would say two or three out of those are overpriced, and you got to be careful. But I would say, many of the markets are still relatively affordable. I think the average new home price in Tampa for example, last year was low 330, something like that. That’s still pretty affordable.

Dean Wehrli:

Yeah. On an average person, yeah.

Mike Moser:

15, 18,000 homes a year. Lennar, I think they did 3,500 homes in Tampa last year. And their average price was probably in the low three hundreds. That’s pretty affordable.

Dean Wehrli:

Yeah, relatively. Sure. Especially if your buyers are coming from the northeast or California, where they can cash out for a good chunk of change, that makes a lot of sense. Let’s end with my favorite thing, which is having you go on record and predicting stuff, so other people like me can gloat later on if you’re wrong. And let’s just do it at the market cycle sense. There’s always that pit, that baseball innings analogy, where are we in the whatever inning. I think I’ve said this before, but in baseball you can bat around, and you can extend that inning for a very long time until you’ve made that third out and it seems like that’s revealing. Do you see this as continuing, maybe not the 25, 30% appreciation, but you can see a solid market fundamentals continuing for a decent length of time going forward?

Mike Moser:

I do and in a lot of the more pro-growth states, and I think it’s going to be much like the last recession, but it won’t be anywhere deep like that, but I think it’s impactful like that. The last recession Texas was, I’m not going to say unaffected, but not affected hardly at all like Florida was, and Washington DC. It didn’t have as much impact as it did in Washington as it did in Florida. So it’s going to be cyclical, and in different municipalities it’ll all be different. But I would tell you, yes, if you asked what do I think the new single family home sales, like I said, I think this year, it probably ends up somewhere around 800,000. And I see that for the next two, three, four years. It’s just where are those 800 going to be built?

Mike Moser:

And so I think you know some of the pricier locales they may not be happy, but the affordable locales along Texas, not all of Texas is affordable as you know, different pockets are pricier. I think that you’re going to see, a DFW will continue to grow, it’s going to continue to attract buyers and it’s a diverse economy. Houston proved its diversity in this last little blip, they had negative oil rates, what it was trading for a negative number if you remember. That was what, April of last year or? And Houston kept selling houses, that’s I think it’s a more diverse economy, it’s very affordable, it’s a pretty desirable place to live. No state tax, it’s got a lot of races there, it’s hot, just like it is in Florida. So I believe that my short answer is yes, unfortunately for me, a guy that thrives on the distress cycles, I don’t foresee that distress day coming back, and I hope it does before I retire.

Dean Wehrli:

No more pennies on the dollar days for you?

Mike Moser:

I hope I get one more of those before I retire. One of the few guys in the room that wants to see a collapse.

Dean Wehrli:

You really are. Well, that’s great Mike, thanks so much for coming on. And that was great. We learned a lot about land and land market today. That was super helpful.

Mike Moser:

Greatly appreciate your time and you guys have a good day.

Dean Wehrli:

You too. Awesome. Okay. Thanks a lot. This is Dean Wehrli for the New Home Insights Podcast, we’ll see you next time.

 

 


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