The next speaker that I want to bring up is is a is a gentleman that you guys have probably read in the news or saw on television or been to some event in which he was a speaker. But Eldon Ruud I guess I’ve known Eldon 30 years, probably close to that, maybe close to that. I’m 32. Yeah, I’m much younger than it looks. Eldon is a principal in 360 Real Estate Analytics. What he does is he works with the building community and is able to give the builders some direction about what’s going on in the marketplace and where they need to be able to go. And as a 30 year industry expert, Eldon has become one of the region’s most respected real estate advisors to professionals in housing development, banking, commercial real estate and the government sector. You see his name being quoted in in all kinds of newspapers and and on television. The Eldon said. So, you know, this is what happens when Eldon says it. As a long time Austin resident, he remains very active in numerous organizations that serve the area. And he has made a life of being able to give back. So, Eldon, we thank you and come up and tell us what’s going on in the builder market.

Okay, good. Whoa. Okay. Don’t eat dessert yet because you might go to sleep. Okay. And Elizabeth, thank you for welcoming out Regina. Thanks for the invitation today to chat with you guys a little bit about some things that I know a little bit about with respect to the economy and the housing market. Dave, after hearing your comments, I suspect that land prices just went up again along 79 between Hutto and Taylor. Maybe they had slowed down a little bit, but that’s going to accelerate it for sure. So as mentioned, I’ve been active in following what’s going on in the real estate economy and housing in the region for a long time. I grew up in Houston and went to school here, was lucky enough to find a job when I got out of school. And I work for a national housing consulting firm for about 20 years and started my own business about ten years ago. And I work with a number of banks and developers and builders in the region, as I talked about in terms of kind of keeping them updated on what’s going on and providing thoughts about what I think is coming. The first thing I’m going to do is kind of a quick, condensed history lesson in terms of what’s happened in the last couple of years and set the stage for for what we might think is going to happen over the next year or so in central Texas.

You guys are certainly on the leading edge of what’s happening out there because you’re working with buyers and sellers every day. So after my talk, whether it be here or you call me or email me, I’m always happy to to to learn from you guys. Because whether you want to argue with me or tell me I don’t know what I’m talking about or confirm some things I’m saying, I learn from you. So a lot of the the recon that I do is having discussions with realtors and builders, whether it be sales and marketing, land teams, division presidents, because there’s just a lot of information there about what’s going on in the marketplace. So it was about three years ago, March of 20, when things were really rolling along and everything was going great, and then Covid hit. And for about 6 to 8 weeks, all of us were very concerned that the sky was falling, that the housing market and every real estate component and jobs, etcetera were about to evaporate. And there was a lot of angst out there, especially among those that kind of track the economy and the housing market. And then within about six weeks, the world changed and all of a sudden the housing market took off. People began to move to Austin. They could live anywhere, work anywhere, just a flood of in-migration into the region. And you guys businesses just took off. None of us had ever none of us expected that.

If I if any of you, if any of you expected that or knew that was going to happen, please raise your hand. Okay. So now it’s completely it’s absolute that no one did. And so what happened over the next 18 months was like none of us had ever seen in terms of the amount of people moving here. And what it did was put just extreme pressure on the supply of housing that was available, whether it be resale or apartments and new homes. And so the builders reacted to that as well as they could. And they started a lot of houses and they started selling a lot of houses. And things were great until about this time last year. And suddenly interest rates had gone up 350 basis points. Prices had gone up 75% and buyers hit the exits and the market quieted. And so we all kind of lived through that experience. And so as we. Entered 2023 or I guess really more like November or December of 2022. The builders had a lot of houses that were under construction and it was a record number of houses and because of supply chain, it was taking forever to finish those houses and they were costing more and more. And so there was a lot of angst in the builder community about what are we going to do with all this inventory? People were backing out of contracts they wanted to renegotiate and everybody was very cautiously optimistic is a strong word as we got towards the end of the year and then we get into December, things get a bit better.

January they get better. So sales overall for the builders, January, February, March, April 1st, part of May generally have exceeded everyone’s expectations for what they thought they were going to do, partly because they were being conservative. So as we sit here today, the builders have now either repriced or finished a lot of that inventory and things are certainly much more sound. That doesn’t mean as an analyst, I don’t get concerned and cautious about things that might happen that would be unexpected. And I’ll talk a little bit more about that as I move through my program. So recap the last two years did that the economy I’ll talk about that real briefly, talk about our housing markets and then kind of moving deeper into 2023. So let’s start off kind of big picture. You know, why is there demand for housing? There’s demand for housing, especially in this region because people move here to take jobs. Families are growing. And there’s certain things that have to kind of be in place to create demand for housing. Part of it is just people and part of it’s the financing opportunities associated with people being able to buy houses and interest rates. So is that is your graph yellow or white? Yellow, yellow.

Okay. Hopefully you can see all this. So typically when I give talks to my clients and others about the housing market, I go on for an hour or hour and a half. I’m not going to do that today. I’m going to make it a lot shorter and hopefully kind of hit some of the high points that I think are most critical. So first off, we all know that inflation is higher than it’s been in a long time. This graph goes back to 2003. The reality is you have to go back to the 1980s when we had inflation that was this high and obviously that had a big impact on interest rates going from 2.8% to 6.8% and 7% last year. And the Fed has a mandate, a job to bring the inflation rate down. And so part of the way they’re doing that is increasing short term rates, which is impacting mortgage rates. The challenge for the Fed is employment is still strong, unemployment is low, inflation is high, wages are still going up. And so the only tool they have is a bat, and that’s raising short term interest rates. And so the big question for all of us following what’s going on with interest rates is will the Fed be able to maneuver this path, if you will, to get inflation down to 2%, which is the target, get unemployment to 5%, which is the target without pulling us into a recession? And I’m not here to answer yes or no whether that’s going to happen, But it’s certainly going to be interesting to watch because some of the experts would certainly say if we’re going to get to those levels of employment and inflation, that that’s going to create some angst in the job market nationwide.

And we’ll all feel that in housing. So that’s going to be interesting to watch. Rates in this draft goes back to 73. I know some of you probably weren’t alive in 1973, but the reason I show a graph that goes back this far is a couple reasons, primarily to show you that the increase that we saw in mortgage interest rates last year and how quickly that happened has not happened since the 70s. And it was it was historic and epic in terms of how fast rates went up. And that’s why the market reacted so quickly in terms of slowing. If I condense this graph or maybe expand, it’s the right word to just show the last few years, what you would see is that the reality is suddenly, if you will, the last six months rates have been between 6 and 7%. So we found an area or a point where we’ve had some stability, which I think has a lot to do with buyers coming back to the market and the fact that the builders especially have been able to have more comfort in that and being able to offer forward commitments and buy down rates so people buying now can get in at 4.9 or 5%.

But there wasn’t the confidence there among the builders late last year that they could do that because rates were so volatile at that time. So that’s been really important. It doesn’t show on this graph. Quick history lesson in terms of the Fed increasing rates and what that does to housing production in the US. This graph goes back to 83 and you can see some areas that I highlighted and the reason I highlighted those were those were periods where the Fed increased rates fairly sharply. And then after that, housing starts went down. And up until a couple of months ago, you couldn’t see on the far right edge of that graph any impact on housing starts. But now you can see in the graph rates went up pretty sharply. Housing starts came down. That will not be as true in some markets over the next 6 or 9 months, including Austin. But a lot of markets across the country will continue to decelerate in terms of their start space. Our annual rate will go down because we’re replacing a year ago starts with with current ones which are lower. But just the reality is that the Fed has this tool at their disposal of raising rates and it impacts the economy and


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