Get Ready For Another Shock to Housing Affordability
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Hello and welcome to another episode of the Oddlots Podcast. I'm Joe Weisenthal.
And I'm Tracy Alloway.
Tracy, you know, one of the big themes, obviously, in American life and the most recent election was inflation. And there are a lot of things that people think of when they think of inflation. Maybe they think of egg prices. That's in the news these days. Maybe they think of gasoline prices. But a big story is like the cost of living is the cost of housing.
Yes. Actually, it's kind of funny. Everyone has their own personal benchmarks for inflation. And mine is probably the cost of mayonnaise, because I've been tracking that for a long time. Not because I eat that much of it, but I just find it interesting because it contains eggs and oil and packaging and labor and all that stuff. And rent. And guess what, Joe? My rent's going up again.
What about your mayonnaise consumption? Like it's funny to be sorry, when you said mayonnaise, I have to admit the first thing that came to my head was like just like imagining you in your apartment with a gigantic
storing buckets of mayonnaise. A
gigantic tub of Costco mayonnaise, eating it with a spoon. I'm sorry. Uh and I was like, Wow, you're really consuming a lot of mayonnaise if this is what comes to your mind when you think about the cost of living.
Well, as part of my research for this, I can tell you you can buy buckets of extra heavy mayo off of Amazon.
Sounds good. Uh we're actually not doing a mayonnaise episode. We're talking about the other one. We're talking about I tried to
throw in my rent
statement to keep
you on topic, but you wanted to talk about mayo.
We'll do a Mayo episode at some point. But rent is really interesting. Actually, in the government's measure, there's so many moving parts with anything housing. But most recently, actually, the government's measure of rent price growth, which has been a key contributor to overall inflation, et cetera, actually has been moderating lately. We're sort of getting back to the point where we're like at pre COVID levels of rent price growth.
Right. So it's still going up but just not as much as it was before.
But the perversity, perhaps it's a perversity, is that obviously the Fed jacked up interest rates quite aggressively to fight inflation. Inflation has come down, took a little longer than people expected, but you know, it has come down. But one of the things that we do know that happens is that when the Fed jacks up interest rates, that really has an effect on housing development, which of course requires a lot of capital and leverage, et cetera. And if you look Look at a chart of say multifamily housing starts, buildings five units or more. That's come way down since its peak, like in twenty twenty two.
Yeah, so we had this huge wave of supply in sort of late twenty twenty one, twenty twenty two. As you said, it's fallen quite a lot. The interesting thing that I see here is like Yields on bonds are still going up. Yeah. Right. So we're at four point five five percent or so on the ten year. And that is higher than when the Fed started cutting rates. So the cost of financing these projects is still going up and there's not that much activity.
Well, we did an episode in November twenty twenty three, and our guest said something really interesting to me that I've repeated probably many times, which is that for a lot of multifamily developers, they might prefer a hard landing in the economy because sure that might mean demand for rent goes down or some of their tenants can't pay their rent.
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