Landmark Links February 19th – Competitive Disadvantage


Lead Story…. Now that there are few foreclosures left to purchase, all-cash investors have set their sights on lower-priced single family homes, inadvertently crowding out first-time home buyers in the process.  This sort of low-supply-driven dynamic is problematic in two ways: 1) We are in a growing affordability crisis in the coastal areas and most new for-sale communities are higher end; and 2) Exactly the same thing is happening in for-rent housing – affordability is a major problem and most new units target high end renters. The only way to solve this problem is to develop substantially more entry level product both for-sale and for-rent.  This doesn’t appear to be happening any time  soon despite the success of DR Horton’s Express brand among others.  In the meantime, the market for less-expensive single family homes seems to be devolving into a zero-sum game between buyers looking to purchase their first home and investors looking to provide rental units. The sad part is that this is all avoidable.  For starters, builder defect laws could be reformed so that it’s actually possible to deliver denser attached units without 10 years of liability and an expensive wrap insurance policy eating away at already tight margins.  In addition, restrictive zoning could be loosened up to allow for more development where it’s needed most.  However, given the political strength of the plaintiff lobby and the determination of NIMBY groups to keep developers out, I wouldn’t hold your breath…….


It’s Complicated: OPEC might be able to broker an oil deal amongst it’s member states and Russia, as it did this week. However, it has no control over what happens in the US where shale producers stand ready to ramp up production if prices go above $50/barrel again.  See Also: Oil prices are so low that pirates in the Gulf of Guinea don’t want it anymore.

The Hangover: China hoped that growth in small cities would lead to the expansion of their middle class.  However, overproduction has swamped these cities, making the Chinese economic crisis even worse.


Disconnect: In a commercial market defined by expensive land and low yields, developers are underwriting substantial rent growth to make deals work.  The bad news?  Investors and lenders are calling BS and a lot of aggressively underwritten deals aren’t getting done.

Renter Nation: Marcus & Millichap sees positive economic and demographic trends as a continued tailwind for multi-family in 2016.  See Also: REIS sees multi-family rents continuing to rise in 2016 albeit not as quickly as in 2015.  And: Rise of the renters.

Potential Warning Sign: Bonds backed by commercial real estate loans have had a rough start in 2016 in terms of both performance and issuance, raising questions about the resilience of the commercial real estate market.


On Watch: Larry Roberts at OC Housing Blog had a great post this week: new regulations make it a lot less likely that we see a housing bubble that is independent from an economic bubble (either regional or national). However, housing can and still will be greatly impacted by regional economic bubbles where incomes rise at unsustainable levels.  He pointed out the Bay Area post tech bubble where rents fell 30% – 39% and values cratered.  Today’s rents and values have rebounded well beyond where they were in the tech bubble era and will most likely continue to rise so long as the Venture Capital cash spigot stays on.  This is a bit different than prior bubbles in that it’s based more on rising incomes (although housing costs are taking up an ever-larger share of those incomes) and a lack of compelling alternative investments than it is on speculators betting that they can make a fortune buying houses. However, if/when the VC spigot shuts off, watch out below.

Peak Realtor? While home prices have recovered strongly from their trough coming out of the Great Recession and housing crash, sale volume and starts haven’t recovered much.  Given the above statement, it shouldn’t be surprising that there are a lot less realtors than there used to be.  See Also: The spring housing season is kicking off with record short supply and housing starts at their lowest level in 3 months.

Keeping an Eye on What Matters: Lack of affordability has reared it’s ugly head again and the top 20 housing markets are all expensive by historical standards.  According to JBREC, the factor that matters most when it comes to new home demand going forward is high-income job growth.


The American Way: The Daily Fantasy Sports industry is under siege from state governments who see it for what it is: a scam.  With that in mind, Daily Leagues are doing exactly what any other industry would do – spend a ton of money on a lobbying blitz in an attempt to buy off legislatures.

Tainted Legacy? Peyton Manning is one of the most beloved figures in American sports and will likely retire a Super Bowl champion.  However, old allegations from college have resurfaced again and could leave a taint on his legacy.

The Big Long: Meet the private British investors who made a killing buying asset-backed bonds that were left for dead by institutions in 2009.

Chart of the Day

The best dog breeds according to data on intelligence, longevity, genetic ailments and other markers versus breed popularity.  The Golden Retriever and the Labrador should be at the extreme top right of this chart but I’m obviously biased.


Video of the Day: Watch a robot make you feel completely inadequate by solving a Rubik’s Cube in under one second.  The machines are taking over and there is nothing you can do about it.

Sh!&tier than Bear Stearns: We learned all about crappy banks during the Great Recession and it’s aftermath but this is something different.  The Dutch have opened the country’s first “Poop Bank” to give “doctors and hospitals access to transplants of fecal matter.”

Paging Mr. Tyson: A Maryland man was arrested for biting off a woman’s finger during a fight at a restaurant.  Police smelled alcohol on his breath with is actually sort of a relief in this case.

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