ICYMI: US New-Home Sales Exceed Forecast Following Upward Revision

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2:09Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. Sales of new U.S. homes exceeded forecasts in July after an upward revision to the prior month as prices eased and heavy incentives enticed more buyers off the fence. While sales did top projections, the new home market has grown dependent on price cuts and incentives to get customers amid high mortgage rates. Katie Hubbard watches this closely. She's executive vice president of Capital Markets at Walton Global. It's the privately owned asset and real estate investment company that has more than$4.5 billion of land assets under management and administration and more than 80 ,000 acres under management and administration.

2:56She joins us from Denver. Walton Global operates in retail, industrial, and commercial. Katie, you were last on with us about a month ago. I'm going to ask you the same question that I asked you at that moment. Is the residential housing market better, worse, or no different than when you were last on our program? Tim, thanks so much for having me. I would say that it is better. While prices are at$403 ,000, it is much more affordable to buy a new home now than an existing home. And we're starting to see investors really move into the new home market. In fact, institutional investors reported last year they were buying up about 4 % of homes for our builder clients.

3:33And now they're reporting 20 % of homes are going to institutional investors. That means that they see the value in the new home prices while there's still a pent-up demand and um just you know high high rates they know that buying now is going to be a good investment for the long term for them so what is driving that

3:52Katie Hubbard:where are we seeing this coming from especially since if you look at the s p 500 real estate stocks are in the green so far this year but they're still one of the worst performing industry groups on a year-to-date basis in the s p 500 if you dig a little bit deeper into the home building index, they're on pace for their best month since July of last year. So what's really driving this demand here? Because if you think about the average person, they would say that rates are too high. Right, Nora, that's a great question. So you saw that obviously recently Warren Buffett, you know, nodded to the industry with nearly a billion dollars in investment in stock into this sector.

4:26And it's really just the fundamentals that are driving this. People need a place to live. And so if you have the pent up demand, knowing that rates, and I think that just the macro, looking at the macro rates could be coming down and the demand is there. That just bodes well for the long-term fundamentals. As far as the stocks go, they're still trading really at a great value, relatively low PE ratios. And so I think that that's why investors are also looking at this as a good long-term fundamental play. So remind everybody, we were talking about this on the call, but it's like Walton Global, not necessarily a household name, but a lot of the firms that you sell to our household names.

5:02Remind everybody about the space you play in and then also what demand is looking like from those customers. Absolutely. So, Walton, we land bank for public home builders. So, we're purchasing the land for them so that they can keep it off their balance sheet. And that is just not a fad or a trend, but that is an ongoing future wave of the home building industry where the large public home builders are doing extremely well because they're holding land off their balance sheet, not tying up their cash. They want to return shareholder equity. They want to turn their money two, three, even maybe four times.

5:34And by keeping land, which is obviously a piece that needs to go into their formula, they just want to build and sell homes. And so Wolfen is feeding the public home builders land. So what we're seeing is that the builders that are doing the best are the ones that are able to really scale their operations, build houses faster, build to the demographic shifts, and lock in their land positions, they're doing just fine. They do have to offer incentives to keep the pace going, but they have, you know, pace over price right now, and it's working for them.

6:04Katie Hubbard:So, of course, you mentioned that you land for public home builders. What's it like on the land side when you are trying to get proper land from landowners? Is there a lot of opportunity there right now? Well, it definitely is. Just like we look at these national numbers that come out, it is very regional. So starts for new homes are up 12.9 % year over year. Starts in Southern California are down 30 % year over year. And that's because insurance prices have gone through the roof. We're now, you've gone from 3 ,000 per house to 17 ,000 per house in some cases. Just they make it very difficult to get projects off the ground.

6:40They're now requiring, in some cases, commercial sprinkler systems in residential homes. That just doesn't make the numbers work. So Southern California is on sale just because it makes it difficult to get projects off the ground. You can get a three bedroom house with sweeping views in Malibu for 1.4 now, just because of the fires. How much is it because insurance costs, it's uninsurable essentially? It's just because insurance costs have gone up and builders are really shying away from all of the red tape that you have to go through in that market. So land, it takes a long time where even we're seeing fix and flippers go from flipping homes to now they're actually taking down land positions and building homes.

7:23You can build for$125 a square foot, sell it for$250 a square foot. The numbers work, but that's not in all markets. In Seattle and Portland, where it takes a year to get your land zoned, you're just going to be paying your lenders too much money to sit on that land. So in places where it's easier to get zoning, and they can go much faster, which is the legal right to build on the land, like Texas, Florida, the Southeast. Those land positions are really valuable. Hey, very quickly, to go back to Malibu, because as a Californian, my head is still spinning. This is one of the areas of the world.

7:56The real estate historically has been the most expensive repeat. The deals you can find in Malibu right now? Yeah. So sweeping views of the ocean, three bedrooms for 1.4 million. Unbelievable. Okay.

8:08Katie Hubbard:Go ahead, Nora. I want to quickly move over into commercial. When we think about commercial real estate, everyone tends to think immediately of office landlords. I cover publicly traded office REITs and office REITs only make up about three percent of REITs more broadly. But what is the appetite like? What is the demand right now in terms of securing land for commercial properties and offices more specifically? Yeah, I would say it is very choppy. And again, it's regional where you're seeing landlords that are still sitting on 50 percent vacant. They're trying to repurpose. They're trying to renegotiate with the bank.

8:42So if you can be in the best location where the the office is strong, which is not in a lot of places across the country, then those are going to be more more desirable.

8:53Katie Hubbard:And what about other aspects of commercial real estate? Yeah, I mean, I would say data centers. I mean, we also own a lot of land where we're selling to data center developers. And so that's clearly a hot topic. And so we're trying to find the data center numbers pencil, but you have to have the energy and the zoning available to make those numbers work as well. When do you start seeing pushback from folks who are saying not in my backyard when it comes to these data centers? I know we're already seeing that, but when does that make building one of these just impossible? Yeah, I mean, at some point, you just have to keep going farther and farther out to where you're not building near where it's going to be affecting people.

9:32So, you know, build farther out. And in Texas, where Walton owns almost 40 ,000 acres of land, there's plenty of land to build on for data centers where you're not going to have that NIMBY mentality. Just 20 seconds, the most important place that investors should look regionally right now when thinking about land. Yeah, I would say the Midwest and the Northeast are performing the best as far as home price appreciation and starts. And the West, Northern California is really struggling. Okay, there it is. Katie Hubbard, always love talking real estate with you. Katie is Executive Vice President of Capital Markets at Walton Global.

10:08It's the privately owned asset and real estate investment company.

10:15When you're running a business, the best days are the ones where priorities stay on track. For midsize and large companies, risk can affect multiple parts of the organization at once, from property and liability to cyber and regulatory challenges. At that level, managing risk becomes an ongoing discipline. At the Hartford, the focus is on helping businesses manage risk before it turns into something more disruptive. And when losses do happen, that work is paired with insurance coverage shaped by years of underwriting, risk engineering, and claims experience. Learn more at the Hartford.com slash risk mitigation.

10:50Policies provided by Hartford Fire Insurance Company and its property and casualty affiliates, Hartford, Connecticut. Whatever your goal, trade show giveaways, client gifts, or team gear, 4imprint has the promo products to match. With thousands of options, from apparel and drinkware to tech and totes, it's easy to find the right fit for your brand and budget with standout choices at every price point. And with their 360 degree guarantee, you can be 4imprint certain your order will show up just right, right on time. Explore more at 4imprint.com. 4imprint. 4certain. Wise is the smart way to manage the currencies you need around the globe.

11:26When you send money abroad using your bank, you could get hit with hidden fees and exchange rate markups. There's a better way. Try Wise. Wise uses the exchange rate you'd usually find on Google, with no unwelcome surprises. Plus, most transfers happen in under 20 seconds, which means your money arrives in less time than you've been listening to me. It's simple and free to sign up when you download the WISE app. Be smart. Get wise. T's and C's apply.

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