Landmark Links November 28th – Foundational Issue


Lead Story…. When I graduated college in 2001, I did not immediately enter the wonderful world of real estate finance.  I had worked as an intern for an investment bank in London while an undergrad and wanted to return full time upon graduation.  Being a naive college kid, I foolishly put all of my eggs in that basket rather than seeking multiple employment options.  Needless to say, it didn’t end well when the tech bubble burst, leading to layoffs across the banking world and leaving my presumptive employer little reason to deal with the headache of a work visa for a 22-year old political science major to enter a wheel program for a couple of years before inevitably returning to get his MBA.  My dreams of working for an investment bank overseas were done and instead, I ended up taking a less traveled path.  I had sailed competitively through college, was the captain of the varsity team at Tufts in a year when we won the national championship and had done quite a bit of youth coaching during the summer months.  As I was looking for job options, I found out that the yacht club in Newport where I had worked the previous summer was looking for a new program director.  By that point it was either live at home with my parents and take a temp job (NOT AN ATTRACTIVE OPTION) or move across the country to manage a program for well over a hundred kids with a staff of +/- 20 people and a substantial operating budget.

One thing that became immediately apparent to me was that there are certain factors that control whether or not a youth sailing program will be successful and they aren’t necessarily what you would think.  Initially, I was under the impression that a large budget, new equipment and top coaches were the sorts of factors that would push a program towards success.  These things are important for sure but they are nowhere near as important as another factor that is often overlooked: demographics.  Early on in my stint as program director it became clear that the best junior sailing eras at the club that I worked at all occurred when there was a critical mass of parents who were sailors themselves and understood how a successful program worked had kids at the same time.  When this critical mass occurred, the program was excellent.  When it didn’t, performance dipped substantially, regardless of who the coaches were or how much money was allocated to the program in the club’s operating budget.  The underlying demographics were  a foundational factor while the other variables like budget and coaches were secondary factors to success.  In other words, a program could overcome mediocre coaching and/or funding if there was a core group of parents that was knowledgeable, dedicated and worked together to make sure that their kids were going in the right direction.  I would like to think that I was largely responsible for the success that many of the kids that I coached experienced.  However, it was far more likely that I was simply fortunate to run the program during a time when the foundational demographic factors were extremely favorable.

So, what does this flashback to my previous sailing coach/director life after college have to do with real estate?  More that you would think.  I had a discussion last week with a Landmark client who had just returned from a home builder conference on the east coast.  This event was not the type where attendees pay high admission fees to listen to panels consisting whoever happened to barf up the most sponsorship dollars – regardless of qualification or expertise in the topic at hand – that have become all too common.  Instead, it was an invite-only affair attended by a who’s who of top builders, developers, lenders and investors – the sort of thing that you can’t buy you way in as a speaker regardless of how much you are willing to shell out.  When I inquired as to the general mood of the conference, I expected to hear a mostly downbeat response about the potential fallout from the Federal tax reform proposal, rising mortgage rates, stubbornly tough credit standards, low FHA limits, declining affordability, difficulty entitling land and various other potential and actual headwinds that I’ve written about here from time to time.  However, his response was exactly the opposite of what I expected.  Something along the lines of “you’d be amazed how optimistic people were.”  Mind you, I know several people who have attended this conference every year since at least 2011 and the attendees are far from Pollyannas (insert National Association of Realtors shill joke here), but yet they were quite upbeat at a time when there are plenty of reasons to be pessimistic.  The reason?  Positive demographics.

Attendees of the conference had a positive outlook because supply is still far below demand and it will be challenging to substantially increase supply as much as needed in this environment. This means that it will be hard for prices to fall dramatically, even in a recession scenario since large drops are usually associated with a glut of supply hitting the market.  They were bullish because the odds of having massive waves of mortgage defaults as in 2008 are extremely low due to a lack of risky mortgage products.  Most of all, they were bullish because they are seeing Millennials are finally move out of their parents’ basements, form households and have kids, and they are seeing it in real time.  Conversations like the one detailed above once again remind me of my all time favorite Calculated Risk chart:


The broader point here is that demographics are a foundational factor in real estate much as I found that they were in junior sailing 17 years ago.  It’s incredibly difficult to have a healthy market if demographics are moving in the wrong direction even if interest rates are low, making borrowing relatively cheap.  Our current reality is that rates are a bit higher than they were recently, prices have gone up substantially and tax policy could be less favorable towards home ownership going forward.  However, this is happening amidst the backdrop of a positive demographic backdrop that should lead to increased home buying demand until at least 2030.  So which factors will win out?  Who knows in the short term but I  know where I’m placing my bet in the long run.


Critical Metric: The yield curve between the 2 year and 10 year treasury may get all of the attention but the Economic Yield Curve or difference between the federal funds rate and economic growth is arguably just as important…..and it’s consistent with a positive outlook.  See Also: What is the yield curve really telling us?

Off the Mark: Wall Street’s pathetic 2017 market predictions from some of finance’s brightest minds are a reminder that accurate forecasting is as much about luck as it is skill.

The Future is Digital:  Sitting in front of a computer screen all day may not be great for your health but you better get used to it as the correlation between wages and digital literacy will continue to rise according to a new study from Brookings.


I’ve Been Saying This For a While: Why dying malls should be converted to much-needed housing.

Rising Tide: Whole Foods is basking in the glow of Amazon’s halo.


Softening: Faster apartment building was instrumental in pulling the US housing market out of it’s slump a decade ago.  Now it’s slowing down.

A Different Way to Pay: Bitcoin is making it’s way into real estate transactions.  See Also: How blockchain could change everything for real estate.

Reality Check: It takes a salary of over $216k to afford a median -priced home in San Jose.

This is a Bad Look: Facebook is letting housing advertisers exclude users by race.


All Aboard: Bitcoin is the first mania in the post-crisis era.  No telling how far this will run but history is not kind to Johnny-Come-Lately investors when get rich quick folks jump on board.

Scammed: College loan defaults likely won’t cause the economy to implode the way that subprime mortgage defaults did.  However, it might be an even bigger scam.

Huh?  Elon Musk’s touted ranges and charge times don’t compute with the current physics and economics of batteries.

Chart of the Day


Gotta Hear Both Sides: An Indiana teacher was arrested after her students walked in on her snorting a mixture of cocaine and heroin in a class room.

This Has Darwin Award Written All Over It: An Arizona man plans to launch himself into space in a home made rocket in order to prove once and for all that the earth is flat.

Burn it With Fire: The lost and found from Burning Man is one of the places on earth that I’d least like to go. (h/t Darren Fancher)

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