Welcome to Location Strategy Chartbook, Texas’ only weekly newsletter dedicated to the homebuilding and land development industries. We will keep you updated on the economic news you need to know. If this is your first issue or someone has forwarded it to you, I’d encourage you to subscribe and to keep reading. We won’t put you on a marketing list, and our newsletter is always free.

Our readers tell us they value the update every week, and several major developers have told us they base their business plans on the information they read here. We’ll cover more about that in upcoming issues.

JOIN US AT FORECAST 2024

Houston once again leads the nation in single family permits. Can that continue? What forces will effect our market next year, and what opportunities will those present? I welcome you to join us at Forecast 2024 to find out. Click here for full details and to reserve your seat.

We have a panel of distinguished builders, developers, and lenders covering affordability across the pricing spectrum and the outlook for project and home lending in 2024. Panelists include:

• Jennifer Keller, Hamilton Thomas Homes

• Becky Ullman, Lennar/Friendswood Development

• Matthew Brodd, AmCap Home Loans

• Lawrence Dean, Veritex Community Bank, moderator

The panel will be followed by the 2024 economic forecast to be given by Scott Davis.

Don’t delay; limited seating is available. Click here to reserve your seat.

LOCATION STRATEGY CHARTBOOK

Gross domestic product is projected to have grown at an annual rate of 4.5% last quarter, more than double the pace in the prior period" and the fastest in nearly 2 years.

Business investment contributed nothing to the recent GDP numbers, with most coming from government spending and personal consumption.

Comparing 2008 and 2020 is revealing. On most metrics, COVID was the biggest immediate economic shock. But while we are still living on a different, tougher trajectory than expected in 2007—still reeling from 2008, in other words — Ameri’s recovery from COVID has seemed swifter. Take consumption levels:

The tightening in US financial conditions since the September FOMC meeting is equivalent to some 80 basis points worth of Fed rate hikes, according to Goldman

The budget deficit was wider than expected in September, ending the year nearly $1.7 trillion in the red, up 23% over last fiscal year - that’s the effect of additional government spending boosting GDP - spending also which is quite inflationary.

The government ran a $2.02 trillion deficit for the fiscal year through September. The gap is $1.02 trillion more than the prior year.

Mortgage loans have been increasing in size linearly, but the last 3 years have seen home prices rise exponentially... until now, given that homebuilders can't fill this gap between the current 30-year mortgage rate and the effective rates that borrowers are currently paying on their home loans forever...

Home purchases are falling through at the highest rate in nearly a year.

There are 1.2 months of completed supply (red line). This is close to the normal level. The inventory of new homes under construction is at 4.0 months (blue line). This has declined from 7 months in July 2022, but is still a larger than normal number of homes under construction. And about 1.7 months of potential inventory that has not been started (grey line) - about double the normal level. Homebuilders are probably waiting to start some homes until they have a firmer grasp on prices and demand.

The median new home sale price is down 12% from a year ago.

The rise in home prices coincided with the Fed’s purchases of mortgage-backed securities (MBS) over the past 15 years.

Everyone locked in 3% mortgage rates, except Millennials.

Household formation was an organic driver of housing between 2012-2019.

Here's an ominous indicator for the Housing Market.

The 10-year government bond now yields a higher return than the Cap Rate or profit from operating a rental property. No wonder real estate investor demand is collapsing. It is more profitable to buy bonds.

Here's one reason small business sentiment is diverging from hard numbers: interest rates for short-term SMB loans are approaching 10%. Less capex and less hiring will surely follow.