Homebuilders Just Went Into Crisis Mode…What Does It Mean For Prices?
Summary
Market Outlook: The housing market is facing significant challenges, with homebuilders like Lenar experiencing a 49% drop in quarterly profits, indicating a bearish trend.
Company Performance: Lenar's share price initially fell but saw a temporary increase due to a surge in new home sales, although this was driven by price cuts and incentives rather than genuine demand.
Sales Dynamics: New home sales reached 800,000, surpassing expectations, but this was achieved through aggressive price reductions, highlighting underlying market weakness.
Interest Rates: Current mortgage rates around 7% are not historically high, but builders are buying down rates to stimulate sales, reflecting weak buyer demand.
Price Reductions: Significant price cuts, up to 29%, are being observed in new home listings, suggesting that builders are struggling to move inventory without reducing prices.
Market Implications: The disparity between new and used home prices suggests that used home sellers may soon need to adjust prices downward as new home sales set lower price benchmarks.
Investment Considerations: The current market conditions suggest potential opportunities for buyers if prices continue to fall, but investors should remain cautious of the broader economic implications.
Future Outlook: The expectation is for lower home prices in real terms over the next few years, driven by ongoing price reductions in the new home market.
Transcript
Hello fellow Robo Capitals. Hope you're well. So, we got big news with homebuilders. We discussed this briefly the other day, but wow, I did not realize how bad it's getting in the housing market right now. And I was going to name this video or the title was going to be no matter how bearish you are on the housing market, you ain't bearish enough. So on that bombshell, let's dive right in and you guys will res you guys will quickly see what I am referring to. Now most of you know LAR came out the other day and announced earnings and their it was either their earnings or their profits. I should get this right. And I I I did this for a whiteboard video this morning, so it should be uh right on the top of my head, but it's not, guys. I apologize. Their their quarterly profit, I think it was down 49%. Down 49%. That's an absolutely staggering staggering number. And Josh, can you go ahead and verify that as I'm going through here? I'm just trying to click on a couple things. That's not it. Uh actually, let me just go ahead and do a quick Google search here. Uh Lenar was the name of the company. Uh profit down by I think it was 49%. The earnings per share dropped 49% in the third quarter. 49%. I mean that is unbelievable. So now, as you know, their share price got shellacked, but look what it did today. So we go back five days and we can see it getting taken out of the woodshed. And then today it we get this big bump. Now to be uh in full disclosure, I have a short position in LAR. And not that you should do that. This isn't investing advice. I'm just telling you what I have here. And uh you'll probably see why in just a moment. So why did we get this bump up today? Like why did the price increase? And just to be clear, I I went short today. I I wasn't short uh before today. So let's go over to the calendar, the market watch calendar that we always reference. This thing is fantastic. And look at this. Wednesday, September 24th, new home sales 800,000. Whoa. And the expectation was for 649. So I know a lot of you right about now are saying to yourself, Georgia, what on earth are you talking about? This is not bearish. This is wildly bullish. In fact, if I'm not mistaken, this is the best number that we have had in years as far as new home sales. So this is telling us that oh my gosh, the buyers are flooding back in. the profits are going to soar for the homebuilders like LAR and we're going straight to the moon, baby. Prices are just going to go higher and higher and higher and higher. But then you scratch beneath the surface. You look underneath the hood and you're like, "Oh, I see this 800,000 number. That ain't bullish." It's actually quite bearish. And I'll tell you why. Let's go straight over to realer.com. And you know, if anything, they're going to put a bullish spin on things. So, new home sales surge in August as builders boost incentives and cut prices. So, sure. Yeah, you you good job. You sold 800,000. you had to slash your prices and basically reduce your margin to almost zero in order to do that. So, it's like me selling a $20 bill for 10 bucks and saying, "Oh my gosh, look at how many $20 bills I just sold for $10. Woohoo. Look at this. Isn't this wildly bullish?" No, that's that's actually quite bearish, right? So, let's keep let's go down the article here. So signed contracts for new single family homes were at a seasonally adjusted rate 800,000 up 21% from July, 15% higher than a year ago. And this is the highest we've seen since January 2022, potentially signaling a resurgence for home builders. Yeah, it's a resurgence for sales, but it's the opposite for prices and it's the opposite for profits. They say they have struggled in the face of weak demand and elevated interest rates. Are interest rates really that elevated? This is one of these narratives that you just hear. I'm sure young people actually think they are because young people don't really have a good idea as to what interest rates usually are because they're young. So just FYI, guys, interest rates at a mortgage at whatever it is now, let's say 7%, that's not high. Now, that might be high versus what we've had over the last 10 years, but you go back 50 years or so. I forget the 1970s. Just look at what they were in the 1990s. And they're going to be way higher uh than they are today. In fact, let me do this. Let me do 30year fixed rate mortgage rates. We'll go to the Fed, good old Fred website. And look, I mean, back in the 1990s, we're at nine 9%. I mean, at the low point, they're at 6.6. And where are we today? 6.26. So, I mean, it's it's And then look where they were in the 80s, for heaven's sakes. Even in the 1970s, well, you would expect them to be high, but uh I wish I could go back to the 60s. Yeah, I'd like to look at decades that weren't inflationary, but we can just use the 80s and the '9s and even in the 2000s when, you know, we had artificially low interest rates that are creating the housing bubble. I mean, that's the narrative, but still like right here around 6.2 pretty much the exact same as where they are today in 2006. So, anyway, you get what I'm saying. Let's get back to the realer.com article. And here is this chart that just sees this parabolic move in the amount of new home sales, which if you just looked at it just right here, you're like, "Oh, wow. My goodness. Bye-bye. Bye. Bye-bye. Lar is going to do amazing." Surprisingly, the surge in August sales came before mortgage rates dropped. Okay, so now we start getting some clues. Now we start getting some clues. Hm. What drove all those sales? It wasn't mortgage rates going down. Maybe it was something different. However, in the face of weak demand from buyers, builders have been aggressively buying down mortgage rates. And more recently, and this is what we're going to get into in just a moment, that this is going to blow your mind. We're going to go to the LAR website. And you guys, trust me, you need to be sitting down for this one. But let's keep going for the moment here. They say buying down rates and offering other incentives to home buyers. Yeah. As well, prices for new homes have fallen below those of existing homes. How does that happen? You see, look, it's obviously the the dynamic that's playing out is existing home buyers are sitting there saying, "Oh, well, I'm just going to hang on to my house. I don't have to sell it and I'm going to wait for a very high price because they're buying the narrative where the new home sellers are like, "No, we got to move inventory here. We got to get this off our balance sheet. So, we're actually going to take the price that is the current market price based on incomes, based on the economy, based on interest rates, the labor market, all these things based on demand." Right? So the the the new home prices and what they're doing, I think is much more a realtime indicator for what's really happening with the housing market than used home prices. Because again, these these sellers for the used homes, they're looking in the rearview mirror where the buyers are looking through the the windshield, as the saying always goes, and the new home buyers or new home sellers, excuse me, are having to cater to the actual demand where the the used home sellers got their head in the clouds. They're still basing their price or their lack of adjustments on demand from last year when pretty soon they're going to see what the new home sellers are seeing. And you're likely, no certainties, only probabilities, but you're likely going to start seeing a reflection in used home prices like we're seeing in new home prices. So, in September, 39% of builders reported cutting prices. So here this is the punch line. The reason why you saw that 800 go up, it's not just because the mortgage rate buy downs. It's because they have been slashing prices. Slashing prices. So how does this impact the comps? And at some point if the new home builders are slashing their prices to the degree to which these new homes are selling at a massive discount to used homes, what you can pretty much see where this is going, right? new home or used homes are going to have to likely follow in the same direction. So, now that everyone is sitting down, let's go over to the LAR website. And I'm not cherry-picking data here, guys. So, let's go over and you can go to the LAR website yourself. So, the first thing that popped up was was Houston. I don't know why Houston is kind of their default. Or maybe that's just because of where I am or I'm not sure. But anyway, and I used this uh for the whiteboard video tonight, by the way. So, check this out. You see the first couple homes here. We're like, "Oh, wow. Cool. Move in ready. 495,000." Oh, okay. Don't see really any discounts here. So, I don't know what George is talking about. These home builders are printing money. But then you start scrolling down and you're like, "Oh, wow. $38,000 price reduction, $77,000 price reduction on a home that's $210 grand. So think about that. It was, call it, uh, $287,000 and they dropped the price by $77,000. That's 77. I'm just doing the math here. That's That's a price drop of 26%. 26%, guys. Th this is not like they're dropping the price by by three grand or like 2% to incentive. They're having to drop the price by 26% in order to move inventory. And you can't sit there and say, "Oh, George, you're just being too bearish." No, I'm just go to their website for heaven's sakes. And it's not like I'm cherrypicking here. Look at this. We'll keep going. Price drop 39,000. Price drop 40,000. Price drop 46,000. Price drop 34. Price drop 52. Price drop 79,000. Price drop $97,000. $100,000. So this home was 500 grand basically and they dropped it by a hundred grand a 20% discount. But a $100,000 price reduction and they haven't sold it yet. 85,000 47,000 $85,000 on a $262,000 or what is now a $262,000 home. I mean, this is bananas. Look at every single one. Not I mean 90% of the homes that I'm scrolling through have massive price reductions. Look at this. An $80,000 price reduction on a home that is now $190,000. So that started off as $270,000. So let me just do the math on this one real quick. I mean this is bananas. That's a 29% reduction in price and it hasn't even sold. [Laughter] I mean, it's not funny. I guess it's really funny if you're a home buyer. This is fantastic news. But if you're a home owner or you're one of those guys that, you know, is trying to sell your home that that uh, you know, if you're just an owner occupant, not a home builder that's trying to sell your house, dude, hit the bid. like hit the bid because you're sitting there pricing your house at let's say 270,000 not realizing that your next set of comps is going to be $80,000 different lower if you live in this neighborhood. And by the way, I think I discussed this the other day. I discussed it for sure tonight on the whiteboard video. These interest rate buyowns, they're only temporary. They only last like a year or two. So basically, it's an adjustable rate mortgage that sure it gets your monthly payment down to whatever you can afford now, 2,000, but in a year or two years, it's going to adjust right back to what the uh the interest rate was. And so let's just say right now it's 7% and you can't afford that payment. Well, sure you can afford the payment for two years, but in two years it's going to adjust back up to 7%. the interest rate that you couldn't afford. And so say, "Oh, but the Fed's going to drop rates." Fine. What's going to happen to the 10-year? And if the 10-year is down, therefore, mortgage rates, what does that mean about the economy? Because remember, interest rates don't control the economy. They are a reflection of the economy. Now, to be fair, I looked at a few other markets. I looked at Phoenix, and it doesn't look like they're starting to drop prices there yet. Yet, I think is the operative word. But let's go over to Florida because this was actually Let me search by browse map. Let's go over to Florida and let I just p pick picked Tampa. That was the first thing that I clicked on before. And look at this price drop. $110,000. Price drop $151,000. I mean, what? Price drop $147,000. I mean, this is completely I mean, this was not on my bingo card. price drop $150,000. I mean, I guess looking at the glass half full, at least it's not as bad as Texas from the standpoint of it doesn't seem like as high of a percentage of their inventory currently requires these types of price drops, but it looks like the price drops that they do have or in some instances is is a a higher percentage and the nominal amount is definitely higher. When you look at those at the top, I mean, $151,000 price drop. Wow. That is just this is mind-blowing. Just mind-blowing stuff. So, I don't know how you can argue that this won't impact used home prices from owner occupants. I mean, and again, we going back to that realer.com article. Let's just use this home as an example. Right now, it's selling for 424,000. It was just for sale for uh what would that be? 575,000 roughly. So all the other homes in this neighborhood or owner occupants, they still have their prices at like 5.75 and they're thinking they're going to get that, but then they don't realize that based on the actual demand, their price should not be 575. Their price should be 424. And this is why you're seeing the with this kind of anomaly situation where new home prices in a lot of areas are actually beneath used home prices. That's basically telling you that the owner occupants have their head in the clouds. The owner occupants have their head buried in the sand. They have no idea what's actually happening as far as the demand component in the real economy. But at some point in time, unfortunately, they're going to get that wakeup call. They're going to realize that if they want to sell the house, they're going to have to drop their price. Now, it is true that this is happening in in certain parts of the United States. Will this happen in or will this continue? Will this spread? I have no idea. But you have to ask yourself, you know, why is it happening in Texas? Why is it happening in Florida? And you know, it's not the the labor markets there should be relatively strong, relatively strong. So my point there is if it can happen in Florida, if it can happen in Texas, in other areas, I don't know why it can't happen throughout the rest of the United States and especially if they drop interest rates because that means the economy is doing worse, the labor market is doing worse. And even if you do get interest rates going down, demand is going to go down a lot faster. So I always say there are no probabilities or or excuse me, there are no certainties or only probabilities. But in in looking at this and just looking at these massive price cuts that are leading to this this bullish narrative, I think if you, like I said, if you just look at the headline, you're like, "Oh, wow. 800,000. They're only expecting 649." But then you actually look at their the LAR website and you're like, "Oh, yeah. That's why they got up to 800,000 because they're selling a $20 bill for 10 bucks and they're, you know, it's like the old saying where they're losing money on every transaction and just trying to make it up in volume. I'm not saying that they're losing money on this. Although, you know, you could almost do the math. This is 200 2,000. Let's just use 2200 square feet because I know darn well that the building costs right now because Kenny Maroy, my good buddy, does new construction. Now, it is multif family, so it's a little bit cheaper for Kenny. But with uh with residential single family, let's just say it's $300. So, $300 a square foot times uh two 2200. And that doesn't include all the regulations, the the cost of licensing, the land costs, and and but and if you guys haven't watched my video on that, you should watch my video on what percentage of a new home is actually uh bureaucracy, red tape, uh regulations, and it's like some crazy amount like 20 or 30%. So, but just wait a minute, that can't be right. That can't be right. 660,000. There's no way. There's no way. Let's actually Wow. I hope I'm wrong. I hope I'm really really wrong. Let's just go to Google and see if we can get some help from AI here. Um cost per square foot to build a home. uh to build a home. Let's do in 2025. 150 to 200 a square foot. That seems really low, though. It can vary significantly. I mean, let's go down to 250. And again, this doesn't include the cost of the land and the cost of all the regulations. This is just to build the structure. Let's go down to 250. times 2200. You're still at 550. Let's take it down to 200. You're at 440. So, Lonar, you're at 440. There's they're they're selling this at a massive loss. Massive loss. Because let's just say that the the cost of the lot was I don't know 20 grand and then the regulation was 50 grand. I I mean I mean you're selling this at uh call it 20 I mean you're selling this like a $7500,000 loss. Wow. At what point would you be a buyer? That's a great question. I mean, depending on this neighborhood where it was, I'm assuming it's a really good neighborhood. I'm assuming good school districts. Um, let's see. If we're if the the per if the build cost Josh and this is the exact math I did in 2012 when I retired and I actually got into real estate I would just look back then obviously the build cost was much lower per square foot but let's just assume that it's 200 I'm probably a buyer at probably 150 a square foot is when I start really getting interested and that obviously depends on the RV ratio. ratios. So that would be the amount of rent that I'm able to collect for my out-of- pocket cost and I want that to be at least 1%. So on this, so let's just do that math. So 150 a square foot times uh 2200 that's going to be 330. And so then I would have to in addition to that, I'd have to get around, you know, $3,300 $3,400 a month for rent on this property before I'm a buyer. I I mean, you've got to, in other words, you got another $100,000 to take out the price before a guy like me steps in. I don't know how that's bullish, guys. I I I don't know how that's bullish. So, we'll we'll have to see how this plays out. I mean, I'm not predicting a a housing market crash or crash in prices. That's very difficult to do because the housing market and the real estate market moves so slowly. But if this continues with the home, the new home sellers having to discount their prices to this degree, it's going to start showing up in the comps. And when it starts showing up in the comps, then the home owners who are considering selling or just, you know, paying attention, they're going to see that and pardon my French, they're going to their pants. And they're going to, if they thought about saying, they're going to get that thing on the market ASAP. And as soon as it starts sinking in that their home isn't worth the 550 they think it's worth that Zillow is telling them and it's actually worth 400, I you're not going to have a supply problem. I can assure you of that. So we we'll have to see how this plays out. I I think my base case is you you got lower home prices at the very least in real terms over the next two or three years. That would probably be my my base case here. So, I don't know. You guys in the chat, give me or in the comments, give me your bull argument based on what we just saw on Lonar's website. Give me your bull argument there. I I'd love to hear it. All right, guys. Enjoy the rest of your evening. As always, make sure you are standing up for freedom, liberty, free market capitalism, and we'll see you in the next video.
Homebuilders Just Went Into Crisis Mode…What Does It Mean For Prices?
Summary
Transcript
Hello fellow Robo Capitals. Hope you're well. So, we got big news with homebuilders. We discussed this briefly the other day, but wow, I did not realize how bad it's getting in the housing market right now. And I was going to name this video or the title was going to be no matter how bearish you are on the housing market, you ain't bearish enough. So on that bombshell, let's dive right in and you guys will res you guys will quickly see what I am referring to. Now most of you know LAR came out the other day and announced earnings and their it was either their earnings or their profits. I should get this right. And I I I did this for a whiteboard video this morning, so it should be uh right on the top of my head, but it's not, guys. I apologize. Their their quarterly profit, I think it was down 49%. Down 49%. That's an absolutely staggering staggering number. And Josh, can you go ahead and verify that as I'm going through here? I'm just trying to click on a couple things. That's not it. Uh actually, let me just go ahead and do a quick Google search here. Uh Lenar was the name of the company. Uh profit down by I think it was 49%. The earnings per share dropped 49% in the third quarter. 49%. I mean that is unbelievable. So now, as you know, their share price got shellacked, but look what it did today. So we go back five days and we can see it getting taken out of the woodshed. And then today it we get this big bump. Now to be uh in full disclosure, I have a short position in LAR. And not that you should do that. This isn't investing advice. I'm just telling you what I have here. And uh you'll probably see why in just a moment. So why did we get this bump up today? Like why did the price increase? And just to be clear, I I went short today. I I wasn't short uh before today. So let's go over to the calendar, the market watch calendar that we always reference. This thing is fantastic. And look at this. Wednesday, September 24th, new home sales 800,000. Whoa. And the expectation was for 649. So I know a lot of you right about now are saying to yourself, Georgia, what on earth are you talking about? This is not bearish. This is wildly bullish. In fact, if I'm not mistaken, this is the best number that we have had in years as far as new home sales. So this is telling us that oh my gosh, the buyers are flooding back in. the profits are going to soar for the homebuilders like LAR and we're going straight to the moon, baby. Prices are just going to go higher and higher and higher and higher. But then you scratch beneath the surface. You look underneath the hood and you're like, "Oh, I see this 800,000 number. That ain't bullish." It's actually quite bearish. And I'll tell you why. Let's go straight over to realer.com. And you know, if anything, they're going to put a bullish spin on things. So, new home sales surge in August as builders boost incentives and cut prices. So, sure. Yeah, you you good job. You sold 800,000. you had to slash your prices and basically reduce your margin to almost zero in order to do that. So, it's like me selling a $20 bill for 10 bucks and saying, "Oh my gosh, look at how many $20 bills I just sold for $10. Woohoo. Look at this. Isn't this wildly bullish?" No, that's that's actually quite bearish, right? So, let's keep let's go down the article here. So signed contracts for new single family homes were at a seasonally adjusted rate 800,000 up 21% from July, 15% higher than a year ago. And this is the highest we've seen since January 2022, potentially signaling a resurgence for home builders. Yeah, it's a resurgence for sales, but it's the opposite for prices and it's the opposite for profits. They say they have struggled in the face of weak demand and elevated interest rates. Are interest rates really that elevated? This is one of these narratives that you just hear. I'm sure young people actually think they are because young people don't really have a good idea as to what interest rates usually are because they're young. So just FYI, guys, interest rates at a mortgage at whatever it is now, let's say 7%, that's not high. Now, that might be high versus what we've had over the last 10 years, but you go back 50 years or so. I forget the 1970s. Just look at what they were in the 1990s. And they're going to be way higher uh than they are today. In fact, let me do this. Let me do 30year fixed rate mortgage rates. We'll go to the Fed, good old Fred website. And look, I mean, back in the 1990s, we're at nine 9%. I mean, at the low point, they're at 6.6. And where are we today? 6.26. So, I mean, it's it's And then look where they were in the 80s, for heaven's sakes. Even in the 1970s, well, you would expect them to be high, but uh I wish I could go back to the 60s. Yeah, I'd like to look at decades that weren't inflationary, but we can just use the 80s and the '9s and even in the 2000s when, you know, we had artificially low interest rates that are creating the housing bubble. I mean, that's the narrative, but still like right here around 6.2 pretty much the exact same as where they are today in 2006. So, anyway, you get what I'm saying. Let's get back to the realer.com article. And here is this chart that just sees this parabolic move in the amount of new home sales, which if you just looked at it just right here, you're like, "Oh, wow. My goodness. Bye-bye. Bye. Bye-bye. Lar is going to do amazing." Surprisingly, the surge in August sales came before mortgage rates dropped. Okay, so now we start getting some clues. Now we start getting some clues. Hm. What drove all those sales? It wasn't mortgage rates going down. Maybe it was something different. However, in the face of weak demand from buyers, builders have been aggressively buying down mortgage rates. And more recently, and this is what we're going to get into in just a moment, that this is going to blow your mind. We're going to go to the LAR website. And you guys, trust me, you need to be sitting down for this one. But let's keep going for the moment here. They say buying down rates and offering other incentives to home buyers. Yeah. As well, prices for new homes have fallen below those of existing homes. How does that happen? You see, look, it's obviously the the dynamic that's playing out is existing home buyers are sitting there saying, "Oh, well, I'm just going to hang on to my house. I don't have to sell it and I'm going to wait for a very high price because they're buying the narrative where the new home sellers are like, "No, we got to move inventory here. We got to get this off our balance sheet. So, we're actually going to take the price that is the current market price based on incomes, based on the economy, based on interest rates, the labor market, all these things based on demand." Right? So the the the new home prices and what they're doing, I think is much more a realtime indicator for what's really happening with the housing market than used home prices. Because again, these these sellers for the used homes, they're looking in the rearview mirror where the buyers are looking through the the windshield, as the saying always goes, and the new home buyers or new home sellers, excuse me, are having to cater to the actual demand where the the used home sellers got their head in the clouds. They're still basing their price or their lack of adjustments on demand from last year when pretty soon they're going to see what the new home sellers are seeing. And you're likely, no certainties, only probabilities, but you're likely going to start seeing a reflection in used home prices like we're seeing in new home prices. So, in September, 39% of builders reported cutting prices. So here this is the punch line. The reason why you saw that 800 go up, it's not just because the mortgage rate buy downs. It's because they have been slashing prices. Slashing prices. So how does this impact the comps? And at some point if the new home builders are slashing their prices to the degree to which these new homes are selling at a massive discount to used homes, what you can pretty much see where this is going, right? new home or used homes are going to have to likely follow in the same direction. So, now that everyone is sitting down, let's go over to the LAR website. And I'm not cherry-picking data here, guys. So, let's go over and you can go to the LAR website yourself. So, the first thing that popped up was was Houston. I don't know why Houston is kind of their default. Or maybe that's just because of where I am or I'm not sure. But anyway, and I used this uh for the whiteboard video tonight, by the way. So, check this out. You see the first couple homes here. We're like, "Oh, wow. Cool. Move in ready. 495,000." Oh, okay. Don't see really any discounts here. So, I don't know what George is talking about. These home builders are printing money. But then you start scrolling down and you're like, "Oh, wow. $38,000 price reduction, $77,000 price reduction on a home that's $210 grand. So think about that. It was, call it, uh, $287,000 and they dropped the price by $77,000. That's 77. I'm just doing the math here. That's That's a price drop of 26%. 26%, guys. Th this is not like they're dropping the price by by three grand or like 2% to incentive. They're having to drop the price by 26% in order to move inventory. And you can't sit there and say, "Oh, George, you're just being too bearish." No, I'm just go to their website for heaven's sakes. And it's not like I'm cherrypicking here. Look at this. We'll keep going. Price drop 39,000. Price drop 40,000. Price drop 46,000. Price drop 34. Price drop 52. Price drop 79,000. Price drop $97,000. $100,000. So this home was 500 grand basically and they dropped it by a hundred grand a 20% discount. But a $100,000 price reduction and they haven't sold it yet. 85,000 47,000 $85,000 on a $262,000 or what is now a $262,000 home. I mean, this is bananas. Look at every single one. Not I mean 90% of the homes that I'm scrolling through have massive price reductions. Look at this. An $80,000 price reduction on a home that is now $190,000. So that started off as $270,000. So let me just do the math on this one real quick. I mean this is bananas. That's a 29% reduction in price and it hasn't even sold. [Laughter] I mean, it's not funny. I guess it's really funny if you're a home buyer. This is fantastic news. But if you're a home owner or you're one of those guys that, you know, is trying to sell your home that that uh, you know, if you're just an owner occupant, not a home builder that's trying to sell your house, dude, hit the bid. like hit the bid because you're sitting there pricing your house at let's say 270,000 not realizing that your next set of comps is going to be $80,000 different lower if you live in this neighborhood. And by the way, I think I discussed this the other day. I discussed it for sure tonight on the whiteboard video. These interest rate buyowns, they're only temporary. They only last like a year or two. So basically, it's an adjustable rate mortgage that sure it gets your monthly payment down to whatever you can afford now, 2,000, but in a year or two years, it's going to adjust right back to what the uh the interest rate was. And so let's just say right now it's 7% and you can't afford that payment. Well, sure you can afford the payment for two years, but in two years it's going to adjust back up to 7%. the interest rate that you couldn't afford. And so say, "Oh, but the Fed's going to drop rates." Fine. What's going to happen to the 10-year? And if the 10-year is down, therefore, mortgage rates, what does that mean about the economy? Because remember, interest rates don't control the economy. They are a reflection of the economy. Now, to be fair, I looked at a few other markets. I looked at Phoenix, and it doesn't look like they're starting to drop prices there yet. Yet, I think is the operative word. But let's go over to Florida because this was actually Let me search by browse map. Let's go over to Florida and let I just p pick picked Tampa. That was the first thing that I clicked on before. And look at this price drop. $110,000. Price drop $151,000. I mean, what? Price drop $147,000. I mean, this is completely I mean, this was not on my bingo card. price drop $150,000. I mean, I guess looking at the glass half full, at least it's not as bad as Texas from the standpoint of it doesn't seem like as high of a percentage of their inventory currently requires these types of price drops, but it looks like the price drops that they do have or in some instances is is a a higher percentage and the nominal amount is definitely higher. When you look at those at the top, I mean, $151,000 price drop. Wow. That is just this is mind-blowing. Just mind-blowing stuff. So, I don't know how you can argue that this won't impact used home prices from owner occupants. I mean, and again, we going back to that realer.com article. Let's just use this home as an example. Right now, it's selling for 424,000. It was just for sale for uh what would that be? 575,000 roughly. So all the other homes in this neighborhood or owner occupants, they still have their prices at like 5.75 and they're thinking they're going to get that, but then they don't realize that based on the actual demand, their price should not be 575. Their price should be 424. And this is why you're seeing the with this kind of anomaly situation where new home prices in a lot of areas are actually beneath used home prices. That's basically telling you that the owner occupants have their head in the clouds. The owner occupants have their head buried in the sand. They have no idea what's actually happening as far as the demand component in the real economy. But at some point in time, unfortunately, they're going to get that wakeup call. They're going to realize that if they want to sell the house, they're going to have to drop their price. Now, it is true that this is happening in in certain parts of the United States. Will this happen in or will this continue? Will this spread? I have no idea. But you have to ask yourself, you know, why is it happening in Texas? Why is it happening in Florida? And you know, it's not the the labor markets there should be relatively strong, relatively strong. So my point there is if it can happen in Florida, if it can happen in Texas, in other areas, I don't know why it can't happen throughout the rest of the United States and especially if they drop interest rates because that means the economy is doing worse, the labor market is doing worse. And even if you do get interest rates going down, demand is going to go down a lot faster. So I always say there are no probabilities or or excuse me, there are no certainties or only probabilities. But in in looking at this and just looking at these massive price cuts that are leading to this this bullish narrative, I think if you, like I said, if you just look at the headline, you're like, "Oh, wow. 800,000. They're only expecting 649." But then you actually look at their the LAR website and you're like, "Oh, yeah. That's why they got up to 800,000 because they're selling a $20 bill for 10 bucks and they're, you know, it's like the old saying where they're losing money on every transaction and just trying to make it up in volume. I'm not saying that they're losing money on this. Although, you know, you could almost do the math. This is 200 2,000. Let's just use 2200 square feet because I know darn well that the building costs right now because Kenny Maroy, my good buddy, does new construction. Now, it is multif family, so it's a little bit cheaper for Kenny. But with uh with residential single family, let's just say it's $300. So, $300 a square foot times uh two 2200. And that doesn't include all the regulations, the the cost of licensing, the land costs, and and but and if you guys haven't watched my video on that, you should watch my video on what percentage of a new home is actually uh bureaucracy, red tape, uh regulations, and it's like some crazy amount like 20 or 30%. So, but just wait a minute, that can't be right. That can't be right. 660,000. There's no way. There's no way. Let's actually Wow. I hope I'm wrong. I hope I'm really really wrong. Let's just go to Google and see if we can get some help from AI here. Um cost per square foot to build a home. uh to build a home. Let's do in 2025. 150 to 200 a square foot. That seems really low, though. It can vary significantly. I mean, let's go down to 250. And again, this doesn't include the cost of the land and the cost of all the regulations. This is just to build the structure. Let's go down to 250. times 2200. You're still at 550. Let's take it down to 200. You're at 440. So, Lonar, you're at 440. There's they're they're selling this at a massive loss. Massive loss. Because let's just say that the the cost of the lot was I don't know 20 grand and then the regulation was 50 grand. I I mean I mean you're selling this at uh call it 20 I mean you're selling this like a $7500,000 loss. Wow. At what point would you be a buyer? That's a great question. I mean, depending on this neighborhood where it was, I'm assuming it's a really good neighborhood. I'm assuming good school districts. Um, let's see. If we're if the the per if the build cost Josh and this is the exact math I did in 2012 when I retired and I actually got into real estate I would just look back then obviously the build cost was much lower per square foot but let's just assume that it's 200 I'm probably a buyer at probably 150 a square foot is when I start really getting interested and that obviously depends on the RV ratio. ratios. So that would be the amount of rent that I'm able to collect for my out-of- pocket cost and I want that to be at least 1%. So on this, so let's just do that math. So 150 a square foot times uh 2200 that's going to be 330. And so then I would have to in addition to that, I'd have to get around, you know, $3,300 $3,400 a month for rent on this property before I'm a buyer. I I mean, you've got to, in other words, you got another $100,000 to take out the price before a guy like me steps in. I don't know how that's bullish, guys. I I I don't know how that's bullish. So, we'll we'll have to see how this plays out. I mean, I'm not predicting a a housing market crash or crash in prices. That's very difficult to do because the housing market and the real estate market moves so slowly. But if this continues with the home, the new home sellers having to discount their prices to this degree, it's going to start showing up in the comps. And when it starts showing up in the comps, then the home owners who are considering selling or just, you know, paying attention, they're going to see that and pardon my French, they're going to their pants. And they're going to, if they thought about saying, they're going to get that thing on the market ASAP. And as soon as it starts sinking in that their home isn't worth the 550 they think it's worth that Zillow is telling them and it's actually worth 400, I you're not going to have a supply problem. I can assure you of that. So we we'll have to see how this plays out. I I think my base case is you you got lower home prices at the very least in real terms over the next two or three years. That would probably be my my base case here. So, I don't know. You guys in the chat, give me or in the comments, give me your bull argument based on what we just saw on Lonar's website. Give me your bull argument there. I I'd love to hear it. All right, guys. Enjoy the rest of your evening. As always, make sure you are standing up for freedom, liberty, free market capitalism, and we'll see you in the next video.