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Why Housing Still Can’t Catch a Break · The Financial Exchange Show

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Speaker 1: and Paul.
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Speaker 2: Lane, Good morning, and welcome back to the financial exchanges.
1:14
Speaker 3: Mike, Paul and Tucker with you on.
1:16
Speaker 2: A relatively busy earnings week, not only for the AI
1:21
Speaker 2: trade within video going tomorrow after the bell, but retail
1:24
Speaker 2: earnings all over the place.
1:25
Speaker 3: This week.
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Speaker 2: We are hearing from Walmart being the biggest one, but
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Speaker 2: Home Depot this.
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Speaker 3: Morning, Low's target, TJX.
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Speaker 2: And I'm sure a few others that I'm forgetting of
1:35
Speaker 2: deers in there, but not exactly a retailer.
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Speaker 3: And markets haven't really been sure.
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Speaker 2: What to do ahead of those earnings, mainly the earnings
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Speaker 2: coming from in Vidia. We remain understrained from an inflation
1:50
Speaker 2: and interest rate perspective due to the events in a run.
1:53
Speaker 2: The ten year treasury now sitting about four and two
1:57
Speaker 2: thirds percent, price of oil dropping a little bit today
2:01
Speaker 2: but still in the over the one hundred dollars mark,
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Speaker 2: about one hundred and eight dollars per barrel here, and
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Speaker 2: we're left with digesting earnings from a traditionally big retailer,
2:16
Speaker 2: certainly a large company, but a good indicator for the
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Speaker 2: state of the housing sector, which is Home Depot, and
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Speaker 2: I think, in my opinion at least Paul relatively unsurprisingly
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Speaker 2: here neither fantastic nor devastating news from Home Depot given
2:32
Speaker 2: the state of things in the housing market.
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Speaker 4: No, it continues to be the same refrain from Home
2:37
Speaker 4: Depot MIC the last couple earnings calls, they've had the
2:40
Speaker 4: same sort of sentiment, which basically is that consumers are
2:44
Speaker 4: deferring spending on larger projects. There really has been since
2:47
Speaker 4: interest rates have rose on mortgages, which goes back now
2:50
Speaker 4: three or four years, maybe even a little bit more
2:53
Speaker 4: than that. Twenty two, they started to pick up that
2:55
Speaker 4: people are not willing to borrow, whether it be through
2:59
Speaker 4: a home equ line of credit or just in general
3:02
Speaker 4: to do the big kitchen renovations or to do the
3:04
Speaker 4: big add ons to their properties. And so as a result,
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Speaker 4: Home Depot has had trouble making up the tremendous sales
3:11
Speaker 4: growth that they saw during that post COVID period. In
3:14
Speaker 4: terms of the numbers that we saw from this earnest quarter. Yeah,
3:18
Speaker 4: they beat a little bit on top line for revenue forecast,
3:22
Speaker 4: but those had been adjusted down. The bar had sort
3:24
Speaker 4: of been lowered for those numbers previously, so it wasn't
3:27
Speaker 4: as if this was some tremendous beat in terms of
3:30
Speaker 4: their comparable sales growth, which this is the metric that
3:33
Speaker 4: is focused on the most of their existing stores. How
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Speaker 4: much did they see in terms of sales growth year
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Speaker 4: over year? That number came in at point six percent
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Speaker 4: year over year, which was less than what analysts had
3:43
Speaker 4: anticipated about point eight percent, so kind of missed on
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Speaker 4: the sales growth number. They continue Home Depot to really
3:49
Speaker 4: focus Mike much more on the pros side of things,
3:52
Speaker 4: so they are less focused. Not to say that they're
3:55
Speaker 4: unwilling to sell to me and you, the regular Joe
3:57
Speaker 4: Schmo going in there on a Saturday.
3:59
Speaker 2: But because they know that we have no idea what
4:01
Speaker 2: we're doing with they can have different versions of the
4:03
Speaker 2: same thing.
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Speaker 4: They can make a big ticket there, but not as
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Speaker 4: big nearly as a professional contractor can be. They've made
4:10
Speaker 4: three strategic acquisitions in that space over the course of
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Speaker 4: the last few years to really sort of get a
4:16
Speaker 4: further inroads into roofing and landscaping and pool professionals and
4:20
Speaker 4: products distributors. That has really been the strategic focus of
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Speaker 4: Home Depot As the regular consumer has been sort of
4:28
Speaker 4: weak and a housing market that's been really tepid, they
4:30
Speaker 4: are spending more money investing in the pro contractor.
4:33
Speaker 3: Yeah.
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Speaker 2: So look, I think, as Paul laid out, I mean
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Speaker 2: there's some clear reasons why they are not immensely succeeding,
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Speaker 2: and I think most of that has to do with
4:42
Speaker 2: the state of the housing market. And you know, speaking
4:44
Speaker 2: of which we've gotten plenty of date over the last
4:46
Speaker 2: couple of weeks here, But a big point that matters
4:49
Speaker 2: would be existing home sales, right, I mean for home
4:52
Speaker 2: depot If you think through the amount of spending that
4:56
Speaker 2: goes into a home when it is getting prepared for sale, landscaping, painting,
5:03
Speaker 2: you know, minor projects, and then after a sale in
5:06
Speaker 2: terms of you know, improvements there there's a lot of
5:08
Speaker 2: contractor expense going into it. And right now, in April
5:13
Speaker 2: of this year, we had almost the exact number of
5:16
Speaker 2: home sales that we did in April of last year.
5:18
Speaker 3: No growth.
5:19
Speaker 2: Yeah, four point zero two million home sales in the
5:22
Speaker 2: month of April, and you saw literally no growth, a
5:25
Speaker 2: zero percent growth rate from April of last year. Taking
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Speaker 2: a look at you know, other factors in here, the
5:32
Speaker 2: inventory situation in the country has been improving, but not
5:36
Speaker 2: quickly enough to really benefit I think the overall housing market.
5:39
Speaker 2: There are currently as of April of twenty twenty six.
5:42
Speaker 2: This is according to realtor dot com, who tracks active
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Speaker 2: listing counts. This includes condos, single families, et cetera. It's
5:51
Speaker 2: just over a million units for sale, which is a
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Speaker 2: vast improvement compared to you know, April of twenty twenty two,
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Speaker 2: when there were under four hundred thousand units for sale.
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Speaker 2: But in April of twenty nineteen there were about one
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Speaker 2: point one four million units for sale, and so, you know,
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Speaker 2: we have not really improved upon that factor. One little
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Speaker 2: piece that you know is interesting to me. We did
6:14
Speaker 2: see in the month of March housing starts bump up
6:18
Speaker 2: a little bit to one point five million, that is
6:20
Speaker 2: at an elevated rate compared to compared to you know,
6:25
Speaker 2: pre pandemic levels. And I think builders are hoping to
6:31
Speaker 2: build but still struggling with the interest rate environment. And
6:34
Speaker 2: so the real question when it comes to the likes
6:37
Speaker 2: of Home Depot, in my mind and the housing market generally,
6:42
Speaker 2: would be, are we are we overestimating what needs to
6:47
Speaker 2: happen with interest rates right like? Because right now when
6:50
Speaker 2: you take a look at futures markets, it's estimating that
6:54
Speaker 2: rates need to go up in twenty twenty seven. That
6:57
Speaker 2: is the next move is a move upwards. Clearly the
7:00
Speaker 2: next FED chair has you know, called that into question
7:03
Speaker 2: a little bit, but ultimately we are already sitting at
7:08
Speaker 2: let me take a look as of yesterday on the
7:10
Speaker 2: thirty year fixed rate mortgage six point six eight.
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Speaker 4: Yes, I was just looking at that. Yeah, we're creeping
7:15
Speaker 4: back up to that seven percent threshold.
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Speaker 2: Really extremely difficult for me. I mean, one, we're already
7:21
Speaker 2: too late into the spring housing market. Even if that
7:23
Speaker 2: were to drop tomorrow, it's not going to drop substantially.
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Speaker 2: You know, best case scenario in my mind, if the
7:30
Speaker 2: straight up home moves miraculously reopened, maybe you're getting into
7:34
Speaker 2: the high fives. And you know, the spring housing market
7:37
Speaker 2: is nearly over. We're already towards that June timeframe and
7:42
Speaker 2: just not a lot of home sell for in the
7:44
Speaker 2: summer market. For a number of reasons. You could get
7:47
Speaker 2: a boost to the fall market, but the fall market
7:48
Speaker 2: is almost always smaller and less volume, and like I
7:52
Speaker 2: just said, most bets that are out there are being
7:55
Speaker 2: wagered on rates going higher, not lower. So my sense
8:00
Speaker 2: would be really tough to envision the spring housing market
8:04
Speaker 2: you know, signifying anything significant in the in the overall
8:07
Speaker 2: housing sector. Your results may vary. Obviously, this is very regional.
8:11
Speaker 2: In Connecticut, if you list your home, you'll probably have
8:14
Speaker 2: a line out the door and and plenty of offers.
8:17
Speaker 3: If you're in Florida, very different situation.
8:20
Speaker 2: I sound like I smoked a pack day, but you know,
8:22
Speaker 2: a pack of cigarettes before I started the show today.
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Speaker 3: I'm not sure why, but overall, what matters.
8:29
Speaker 2: For the state of the housing market and for companies
8:31
Speaker 2: like home depot are is this a receptive market towards construction.
8:37
Speaker 2: Is it a you know, market where a lot of
8:40
Speaker 2: builders want to get out there and put up a
8:42
Speaker 2: lot of new homes. And the answer for a number
8:45
Speaker 2: of different reasons right now is not really. Commodity prices
8:49
Speaker 2: on the rise. Interest rates, which you know a lot
8:52
Speaker 2: of people bet we're coming down this year have reversed.
8:56
Speaker 2: And if you are, you know, pulty making your plans
8:59
Speaker 2: for the rest of this year, I can't imagine you're
9:02
Speaker 2: getting super excited about trying to hire a bunch of
9:06
Speaker 2: people away from building up data centers to go and
9:09
Speaker 2: spend a bunch of money building new homes in a
9:11
Speaker 2: development where you're just unsure of what the market's going
9:15
Speaker 2: to look like.
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Speaker 4: Do you feel that you had kind of pose the
9:17
Speaker 4: hypothetical that we are overestimating the impact of interest rates
9:21
Speaker 4: on the housing market.
9:22
Speaker 5: I don't think.
9:23
Speaker 4: We are, necessarily, And I'm just looking at the US
9:25
Speaker 4: ten year Treasury, which is the benchmark for the thirty
9:28
Speaker 4: year fixed mortgage that Mike was speaking up before. Prior
9:31
Speaker 4: to the war beginning, we were sitting about four percent
9:34
Speaker 4: three point nine six on February twenty seventh the US
9:37
Speaker 4: ten year treasury. We now sit at four point sixty five.
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Speaker 4: That's a meaningful impact, almost a one for one, you know,
9:43
Speaker 4: in terms of the basis point impact on mortgages.
9:45
Speaker 5: But just curious your thoughts.
9:47
Speaker 4: I think it is pretty sensitive that if we were
9:49
Speaker 4: creeping back down to the fives, that I would be
9:51
Speaker 4: a little bit more optimistic on the housing market.
9:54
Speaker 3: Yeah.
9:54
Speaker 2: I mean, look, there's a few pieces of this. One
9:56
Speaker 2: is just the pure affordability conversation. You can forward less
10:01
Speaker 2: dollars of house when you have a mortgage rate at
10:03
Speaker 2: six point seven compared to five point nine. There's also
10:07
Speaker 2: a psychological effect there, and I do think that there
10:10
Speaker 2: are buyers who simply say I'm waiting until I can
10:14
Speaker 2: buy into a market with a mortgage rate with a
10:17
Speaker 2: five in front of it instead of with a six
10:19
Speaker 2: in front of it, And that just does remove some
10:23
Speaker 2: buyers as well as some sellers who say, you know,
10:25
Speaker 2: I'll just wait for a market where oil prices aren't
10:28
Speaker 2: shooting up, where people are worried about the state of
10:30
Speaker 2: war in Iran and higher interest rates, I'm just going
10:33
Speaker 2: to hold off.
10:34
Speaker 3: So yeah, I do think there's a meaningful impact.
10:36
Speaker 2: Very tough to measure, but we see it in listings,
10:39
Speaker 2: we see it in sales, and I think a lot
10:42
Speaker 2: of that most of that does have to do probably
10:45
Speaker 2: with interest rates. Let's take a quick break when we
10:48
Speaker 2: come back. Piece from the Wall Street Journal about everything
10:51
Speaker 2: feeling more expensive these days.
10:53
Speaker 3: Clearly we're seeing it in the.
10:55
Speaker 2: Housing market and mortgage rates, but I want to talk
10:57
Speaker 2: about that phenomenon a little bit and how people are
10:59
Speaker 2: so identifying themselves in terms of where they fall in
11:04
Speaker 2: the class system of US economics.
11:07
Speaker 3: That's next on the Financial Exchange.
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Speaker 2: So very clearly, if there's one theme in the US
11:54
Speaker 2: economy over the last five years, it's affordability. I think
11:56
Speaker 2: it's arguably why Democrats lost the last election. I think
12:02
Speaker 2: that it is having a ton to do with people's
12:05
Speaker 2: outlook on the economy today, and it is a key
12:10
Speaker 2: focus for just about everybody, especially now with gas prices
12:14
Speaker 2: moving up. I'm also comfortable saying that the New York
12:18
Speaker 2: Times profiling a family of three who's earning half a
12:21
Speaker 2: million dollars and bemoans their income situation and describes themselves
12:26
Speaker 2: as firmly middle class, is out of touch.
12:31
Speaker 3: So don't get me wrong.
12:32
Speaker 2: Manhattan one of the most expensive places, probably the most
12:35
Speaker 2: expensive place in the country to live, especially if you're
12:39
Speaker 2: living on the Upper West Side, but I looked it
12:42
Speaker 2: up and in the New York metro area, if you
12:45
Speaker 2: are earning half a million dollars, that puts you in
12:48
Speaker 2: the top five to seven percent of people in that
12:51
Speaker 2: of households in that area. So just there is no
12:56
Speaker 2: definition of middle that you know, you being in the
12:59
Speaker 2: top five to seven percent of people you know aptly describes.
13:03
Speaker 2: And you know, if you are feeling like you're forty
13:08
Speaker 2: two hundred a month daycare bill and you're thirty nine
13:12
Speaker 2: hundred dollars a month rent.
13:13
Speaker 4: Which by the way, that feels very low for Manhattan.
13:17
Speaker 2: For a family of three living in Manhattan for thirty Yeah. Yeah, Like,
13:21
Speaker 2: you know, I understand why people are frustrated with affordability, scarcity,
13:28
Speaker 2: the cost of labor, childcare especially, like you know experience
13:32
Speaker 2: that firsthand. You know, when my kids graduated daycare in Massachusetts.
13:38
Speaker 3: It's tough.
13:39
Speaker 2: It's genuinely tough to send more than two children to
13:42
Speaker 2: daycare on a salary of less than one hundred thousand dollars. So,
13:46
Speaker 2: like that, that's a firm reality there that I fully acknowledge.
13:49
Speaker 2: But I'm also comfortable saying that if you're earning half
13:51
Speaker 2: a million dollars in the New York metro area.
13:54
Speaker 3: You're not middle class.
13:55
Speaker 4: Well, the cherry on top was that they were saving
13:57
Speaker 4: ten grand a month, which is just like unbelievably. I mean,
14:00
Speaker 4: you and I do this for a living where we
14:02
Speaker 4: meet with people every day, and if that's an incredible
14:05
Speaker 4: savings rate to be able to have. But let's call
14:08
Speaker 4: a space of spade. They knew what they were doing here,
14:09
Speaker 4: Mike Like, I mean, this is to get you fired
14:11
Speaker 4: up about it. It is a broader point of this
14:15
Speaker 4: five hundred thousand example is outland just to get people
14:18
Speaker 4: to click on it and talk about it and for
14:20
Speaker 4: everyone to get upset by saying that anyone suggesting that
14:23
Speaker 4: they're making half a million bucks and is feeling middle
14:26
Speaker 4: classes is off base, but most to Harlem.
14:29
Speaker 2: But you don't need to live on the Upper West
14:31
Speaker 2: Side and feel poor, Like give me a break.
14:34
Speaker 5: From a broader perspective.
14:35
Speaker 4: The reason I like this Wall Street Journal piece that's
14:37
Speaker 4: in response to the New York Times piece is this
14:40
Speaker 4: idea of hitting on some areas of why forget this
14:44
Speaker 4: couple with the five hundred thousand, why do people feel leaner?
14:48
Speaker 4: And I think this point does hit home sure. For like,
14:52
Speaker 4: I have a family member who they're about to have
14:54
Speaker 4: their third child and they both work. And this is
14:56
Speaker 4: one of the pieces that's hit on here in this
14:58
Speaker 4: Wall Street Journal piece. Back in nine teen seventy five,
15:00
Speaker 4: you had forty two percent, forty five percent of married
15:04
Speaker 4: mothers actually active in the workforce. That number sits at
15:07
Speaker 4: seventy two percent today, so far more houses that are
15:10
Speaker 4: dual income earning. But for this example that I'm talking
15:12
Speaker 4: about locally in the Greater Boston area, my wife and
15:14
Speaker 4: I were just chatting about the cost it would be
15:17
Speaker 4: for those three kids to be in some sort of daycare,
15:20
Speaker 4: have some sort of babysitting. You know this stuff too.
15:22
Speaker 4: It's a huge number where basically, to your point, one
15:25
Speaker 4: hundred thousand dollars salary will probably cover the cost of
15:29
Speaker 4: their care. But that means somebody else has to have
15:32
Speaker 4: a salary. And I think that point is absolutely salient
15:35
Speaker 4: and is a real issue, and it speaks to this
15:37
Speaker 4: broader point in general regarding the swelling of costs, where healthcare, childcare,
15:44
Speaker 4: and education are three areas. Over the course of the
15:46
Speaker 4: last however, you want to do it twenty five thirty years,
15:49
Speaker 4: that don't have nowhere near the productivity gains that we
15:53
Speaker 4: have in basically having a computer on my you know,
15:56
Speaker 4: on our desk here, in my iPhone, and the other
15:59
Speaker 4: technological advances that you've seen in cars in other areas.
16:02
Speaker 5: That's the point.
16:03
Speaker 2: It's pretty indisputable that Americans on average have gotten wealthier
16:09
Speaker 2: and have a increased quality of life over the last
16:12
Speaker 2: fifty years. You can measure it. You know, they do
16:15
Speaker 2: a good job pointing out the car in your driveway
16:18
Speaker 2: far less likely to kill you. Traffic fatalities per mile
16:21
Speaker 2: driven have fallen sixty two percent over the last fifty years.
16:24
Speaker 2: Life expectancy an extra three point six more years for
16:27
Speaker 2: somebody reaching the age.
16:28
Speaker 3: Of sixty five.
16:29
Speaker 2: The air we breathe is cleaner, like lots of quality
16:31
Speaker 2: of life things have changed to your point. You know,
16:35
Speaker 2: a television that I can slap on the wall is
16:37
Speaker 2: a fraction of the cost. The cell phone in my
16:40
Speaker 2: pocket is you know, unrecognizable certainly to somebody the nineteen seventies,
16:44
Speaker 2: but even unrecognizable to somebody in the nineteen nineties.
16:46
Speaker 4: And so even like two thousand and eight, I was
16:48
Speaker 4: looking at some Celtics at the other day for a
16:50
Speaker 4: parade back seventeen years ago, the flip phone, like cameras, Like,
16:54
Speaker 4: how far we've come from that?
16:55
Speaker 5: It's wild.
16:55
Speaker 2: So technological innovation and you know, prices moving down for
17:00
Speaker 2: really high tech items has arguably improved our lives in
17:04
Speaker 2: ways that are difficult to measure. But to the other
17:08
Speaker 2: side of that equation, yeah, things that are not technology driven,
17:11
Speaker 2: things that cannot be outsourced to China, like the manufacturing
17:14
Speaker 2: of televisions can are absurdly expensive in some parts of
17:17
Speaker 2: the country.
17:18
Speaker 3: And American families, especially those.
17:20
Speaker 2: With young children or older adults, you know, we bemoan
17:25
Speaker 2: all the time, Paul. You know the talk of childcare,
17:27
Speaker 2: because Massachusetts is the most expensive state to pay for
17:31
Speaker 2: daycare in the entire country. So is sending somebody to
17:35
Speaker 2: a nursing home. Yeah, Like, you think about the other
17:38
Speaker 2: side of that equation here, anything that requires hands on
17:42
Speaker 2: care is absurdly expensive in much of the country. And
17:47
Speaker 2: there isn't really a path that I'm seeing to improve
17:50
Speaker 2: upon that. I think clearly robotics is being discussed as
17:55
Speaker 2: a way of the future, We're not there anytime soon.
17:58
Speaker 2: In the meantime, a large demographic for people who provide
18:03
Speaker 2: the type of care that we're describing either end of
18:05
Speaker 2: life care or child care or construction costs, you know,
18:10
Speaker 2: all of these things that have gotten right. Does anybody
18:13
Speaker 2: look at housing construction and say, wow, that's so affordable?
18:17
Speaker 2: These are all, you know, oftentimes done by migrants or
18:22
Speaker 2: you know, an uneducated class that you know has come
18:24
Speaker 2: to the United States historically to.
18:26
Speaker 3: Do that type of work.
18:27
Speaker 2: And we're making some policy decisions right now that the
18:30
Speaker 2: majority of Americans pulled seem to agree upon that we
18:33
Speaker 2: don't want to allow that type of migration. And so
18:36
Speaker 2: it's difficult for me to envision a scenario where, you know,
18:41
Speaker 2: for the family starting you know out over the next decade.
18:45
Speaker 2: How do I see a scenario where childcare becomes more affordable,
18:48
Speaker 2: it have to be subsidized. How do I see a
18:51
Speaker 2: scenario where end of life care, nursing homes and the
18:55
Speaker 2: living facilities become more affordable.
18:57
Speaker 3: Same story.
18:58
Speaker 2: Yeah, that's that's the only real path to it, which
19:00
Speaker 2: doesn't mean that it's getting more affordable. It just means
19:03
Speaker 2: that it's being born by the taxpayer rather than the
19:06
Speaker 2: individual covering the care. Because there's only really one direction
19:10
Speaker 2: for that type of attentive needs. And you skill to go,
19:18
Speaker 2: which is we just have to go up over the
19:19
Speaker 2: course the next decade. Let's take a quick break when
19:22
Speaker 2: we come back. Full market update here. We've got a
19:25
Speaker 2: bit of a sell off in early trading. That's next
19:27
Speaker 2: on Wall Street.
19:27
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19:58
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20:00
Speaker 6: A little selloff on Wall Street at the moment as
20:02
Speaker 6: investors react to the first big retailer earnings from Home
20:05
Speaker 6: Depot this morning. As for the Middle East, President Trump
20:09
Speaker 6: announced late yesterday he was calling off a plan to
20:11
Speaker 6: attack a run after Gulf States appealed, wanting more time
20:15
Speaker 6: to pursue diplomacy. Right now, the Dow is down about
20:19
Speaker 6: a third of a percent, SMP five hundred down eight
20:22
Speaker 6: tenths of a percent, Nasdaq selling off one and a
20:26
Speaker 6: quarter percent, or three hundred and thirty one points, RUSSED
20:29
Speaker 6: two thousands down nearly two percent. Tenure treasureeled is up
20:34
Speaker 6: five basis points at four point six seven percent, and
20:38
Speaker 6: Oil down two thirds of a percent, trading right around
20:42
Speaker 6: one hundred and eight dollars a barrel. Home Depot stock
20:44
Speaker 6: is up about a half a percent after the home
20:47
Speaker 6: improvement retailer beat street expectations and reaffirmed its full year guidance.
20:52
Speaker 6: The company say its core consumer remains engaged despite higher
20:56
Speaker 6: gas prices and waning consumer confidence lows TJX in turn
21:00
Speaker 6: on deck tomorrow and will report earnings ahead of the
21:03
Speaker 6: opening bell. Meanwhile, the Wall Street Journal reported that Alphabet's,
21:06
Speaker 6: Google and Blackstone plan to create an AI cloud company
21:11
Speaker 6: to compete with the likes of core Weave using Google
21:14
Speaker 6: specialized chips. Alphabet down by two percent, Blackstone stock is
21:18
Speaker 6: off nearly one percent, and Core Reef shares it down
21:21
Speaker 6: over seven percent, and service Now stock is up by
21:25
Speaker 6: three percent after Bank of America analysts said the business
21:28
Speaker 6: software company would benefit from AI, giving this stock a
21:32
Speaker 6: buy rating.
21:33
Speaker 5: I'm Tucker Silvan. That is Wall Street.
21:36
Speaker 3: Watch, Paul.
21:38
Speaker 2: There's been increasing pushback to data centers. I guess just
21:44
Speaker 2: the general topic of AI. When I speak about it
21:48
Speaker 2: with the general public, I think there is certainly a
21:53
Speaker 2: lot of excitement, but a fair bit of concern. When
21:59
Speaker 2: I'm speaking with old Americans some relief that they're not
22:02
Speaker 2: needing to learn about it and train themselves on it.
22:06
Speaker 3: But increasingly we are getting.
22:08
Speaker 2: What is, you know, the same phenomena that we've been
22:11
Speaker 2: dealing with with when it comes to housing and other
22:13
Speaker 2: projects for over a decade now, which is the nimbiism
22:18
Speaker 2: of you know, this project and the problems with it.
22:22
Speaker 2: And increasingly I can understand why. You know, there's a
22:27
Speaker 2: piece from the Boston Globe about the data center and
22:31
Speaker 2: loll and the complaints that they have there regarding noise
22:34
Speaker 2: and their concerns about air quality and all sorts of
22:38
Speaker 2: different things. Apparently they have a diesel generator that turns
22:40
Speaker 2: on for the fans and things like that when needed,
22:43
Speaker 2: and so, you know, the local piece of that, I
22:46
Speaker 2: can fully comprehend. What I honestly feel like is that
22:51
Speaker 2: the AI industry as a whole is just doing a
22:55
Speaker 2: terrible job of representing themselves to the public. And you know,
23:01
Speaker 2: I feel like they could use a good boost from
23:02
Speaker 2: that guy from Thank You for Smoking. I don't remember
23:05
Speaker 2: the character's name. I don't know if you guys ever
23:06
Speaker 2: saw that two thousand and five movie. But like plenty
23:10
Speaker 2: of industries that are terrible for the environment and you know,
23:17
Speaker 2: arguably bad for society. They have a pretty good and
23:21
Speaker 2: easy way of going out to the public and selling
23:23
Speaker 2: themselves as, you know, something that is in the interests
23:27
Speaker 2: of the public.
23:28
Speaker 3: And honestly, you could make a pretty.
23:30
Speaker 2: Easy argument with these data centers, right, Like, I think
23:34
Speaker 2: about all of the costs that go into building this stuff,
23:37
Speaker 2: and the idea of subsidizing property taxes or utility costs
23:43
Speaker 2: or whatever method you wanted to go with as just
23:46
Speaker 2: part of the overall construction package just do not seem
23:50
Speaker 2: that challenging to me, And I don't really understand why
23:52
Speaker 2: they're not pushing forward with it, because the longer it
23:56
Speaker 2: goes on with pushback on construction and lowal zoning changing
24:00
Speaker 2: the rules on you.
24:02
Speaker 3: The more difficult it's going to make it in the future.
24:04
Speaker 4: Yeah, I mean, one argument could be made that they
24:07
Speaker 4: are typically the people constructing these data centers companies with
24:10
Speaker 4: big pockets. But my counter argument for those people with
24:13
Speaker 4: big pockets, they're probably trying to do this as affordable
24:16
Speaker 4: as possible because the huge amount of capex that goes
24:19
Speaker 4: into building out and competition data centers, and there's competition,
24:22
Speaker 4: so while it's easy for us to sit here in
24:25
Speaker 4: our armchairs and say they should just subsidize more of
24:28
Speaker 4: the costs for the town, whether it be through property
24:30
Speaker 4: taxes or other subsidies that these hyperscalers could push forward.
24:35
Speaker 4: They're worried about their shareholder return and the bottom line.
24:38
Speaker 2: So there's that, you know what the other piece of
24:40
Speaker 2: it is too, It is not unlike. It does remind
24:43
Speaker 2: me a lot of the HQ two discussion that we
24:45
Speaker 2: had with Amazon, where it's not the same thing Amazon.
24:49
Speaker 2: HQ two was going to employ, you know, thousands of people,
24:52
Speaker 2: and but what Amazon was able to do was, you know,
24:56
Speaker 2: go out there to city after city and say, hey,
25:00
Speaker 2: come to us with your best proposal, all the tax
25:02
Speaker 2: breaks you can get. And honestly, that's probably what these
25:06
Speaker 2: data centers are able to do now too, with a
25:09
Speaker 2: little bit less fancasa.
25:11
Speaker 4: I think they started that way, but then once they
25:13
Speaker 4: realize consumers realize the potential ripple effects of utility costs
25:17
Speaker 4: and things like that. I do believe early on that
25:19
Speaker 4: they did have the leverage in their court to be
25:21
Speaker 4: able to say we're going to come in, We'll pay
25:24
Speaker 4: you a ton of money to put this facility here,
25:26
Speaker 4: but now the weight has swung back into the politician side,
25:31
Speaker 4: being more concerned about public outcry against it. But you
25:35
Speaker 4: mentioned a good point of what these AI leaders should
25:39
Speaker 4: be doing from a marketing standpoint, and I do feel
25:44
Speaker 4: as if they need to reshape the narrative about artificial
25:48
Speaker 4: intelligence and try and educate the public more and also
25:51
Speaker 4: probably frame it in a more easier to grasp manner,
25:55
Speaker 4: because I feel like a lot of these people, whether
25:56
Speaker 4: you want to talk about anthropic open AI, all the
25:59
Speaker 4: big players, tend to kind of veer to this sort
26:03
Speaker 4: of dystopian view that the technology is going to become
26:07
Speaker 4: so overwhelming and so powerful that it's going to be
26:09
Speaker 4: able to do all these things that creates fear in
26:13
Speaker 4: the system. I'm going to lose my job. But the
26:16
Speaker 4: approach on my end and they're just talking up their book, right,
26:18
Speaker 4: They're just trying to make it justify the billions of
26:20
Speaker 4: dollars that they're spending. But there should be a bit
26:23
Speaker 4: more of a measured approach to Hey, these are the
26:26
Speaker 4: PRODUCTIVIT enhancements that can provide you. Not going to that
26:29
Speaker 4: further level of Mike, you and I are going to
26:31
Speaker 4: need to figure out how to spend our forty hours
26:33
Speaker 4: a week because all jobs are going to be you know, obsolete,
26:37
Speaker 4: and we're going to be living in this just sort
26:38
Speaker 4: of social welfare state.
26:40
Speaker 2: Even just practically speaking, yeah, this isn't likely the way
26:44
Speaker 2: it goes out. But if you're one of those companies
26:47
Speaker 2: building the data center one, I think you could do
26:51
Speaker 2: more to you know, endear yourself to the local community.
26:55
Speaker 2: But just practically speaking, here, if you're building this AI
26:58
Speaker 2: giant data center, you are becoming a giant customer of
27:03
Speaker 2: the local utility without a lot of complexity.
27:06
Speaker 3: Right.
27:06
Speaker 2: I think about the size of one of these data
27:08
Speaker 2: centers and compare it to a housing development and all
27:11
Speaker 2: of the electrical infrastructure and power that needs to go
27:14
Speaker 2: to each individual property. And now just compare that to
27:17
Speaker 2: one giant data center where you're just building a road
27:20
Speaker 2: and a giant electric line to one customer that you
27:25
Speaker 2: know is to take ten times more power times more,
27:29
Speaker 2: but they are going to pay for it and it's
27:30
Speaker 2: not going to be this complex buildout of Oh we
27:33
Speaker 2: need to feed power lines to these different and I've
27:35
Speaker 2: heard that argument play out, like hey, yes, we are
27:38
Speaker 2: going to consume a lot of electricity but it's not
27:41
Speaker 2: as though it's the same type of you know, build
27:45
Speaker 2: out an infrastructure need of a giant housing development that
27:49
Speaker 2: might consume as much electricity. Furthermore, other infrastructure is going
27:54
Speaker 2: to be impacted, right, Hey, we are going to need
27:56
Speaker 2: to improve the internet access in the general area because
28:00
Speaker 2: we need high speed internet in.
28:02
Speaker 3: Order to do this.
28:02
Speaker 2: There are side effects that they don't even actually need
28:07
Speaker 2: to be paying for that they are not publicizing in
28:09
Speaker 2: any meaningful way, and I don't think those outweigh the
28:12
Speaker 2: cost of the amount of water and electricity that they're
28:14
Speaker 2: going to consume and how much they're going to drive
28:16
Speaker 2: up those prices for me. But again, if your job
28:20
Speaker 2: is to just sell the positives, which they're not seemingly doing,
28:24
Speaker 2: I think they're falling even the blustery, bogus information that
28:29
Speaker 2: they could be putting out there. So we will see
28:31
Speaker 2: I think more and more municipalities, though, are going to rebel.
28:34
Speaker 3: Against this, that's for sure. I don't want this in
28:37
Speaker 3: my backyard.
28:38
Speaker 5: You read all these pieces.
28:39
Speaker 4: The amount of cancelations and delays that we're seeing with
28:42
Speaker 4: data centers continues to be on the rise, and I
28:44
Speaker 4: don't think it's slowing down which from a broader global
28:48
Speaker 4: competition's perspective is frustrating. Even though you understand some of
28:51
Speaker 4: the nimiism, it's probably not the best to slow down
28:56
Speaker 4: this race when you're up against China.
28:58
Speaker 2: For Yeah, if you believe it's an AI arms race
29:00
Speaker 2: and it's a winner take all approach between the United
29:02
Speaker 2: States and China, then yeah, tough to justify slowing.
29:06
Speaker 3: It down as much as we are.
29:08
Speaker 2: The other seemingly like definite truism right now is that
29:13
Speaker 2: while AI could replace a bunch of twenty somethings, it's
29:17
Speaker 2: compared to basically having like an unlimited population of twenty
29:21
Speaker 2: year old in terms like that, Yeah.
29:23
Speaker 5: Yeah, like smart but need context.
29:25
Speaker 3: Smart but have no context for what they're doing.
29:27
Speaker 2: Is how they described artificial intelligence, and in a lot
29:30
Speaker 2: of ways, I think that's an apt description. I just
29:33
Speaker 2: do also challenge how safe the blue collar worker is.
29:39
Speaker 2: I mean, clearly from this iteration of artificial intelligence. I
29:42
Speaker 2: think clearly, if you are a construction worker or a nurse,
29:46
Speaker 2: or a care provider or a teacher, you're pretty well
29:49
Speaker 2: insulated from all of this. But I think people continue
29:54
Speaker 2: to underestimate the power of robotics that we are already
29:57
Speaker 2: starting to see improvements in and I know that this
29:59
Speaker 2: is kind of loosely tied to AI, but does anybody
30:03
Speaker 2: think if wages keep going the direction that they're going,
30:06
Speaker 2: that we're not going to see more automation and fast
30:08
Speaker 2: food restaurants and in healthcare and in maybe not in childcare.
30:13
Speaker 3: That would be kind of freaky. But yeah, Like, we're
30:16
Speaker 3: covering lots of.
30:16
Speaker 2: Pieces about how China is implementing robotics, and I'm just
30:20
Speaker 2: unconvinced that if you are a union worker at an
30:24
Speaker 2: auto manufacturer, you're going to be somehow exempt from any
30:28
Speaker 2: automation coming from AI, or if you are a construction
30:32
Speaker 2: worker building hasing developments in Florida, like, no piece of
30:37
Speaker 2: that is going to be automated over the course of
30:39
Speaker 2: the next decade. I'm I do believe that the closer
30:43
Speaker 2: you are to doing physical work with people, the more
30:46
Speaker 2: protected your job is from artificial intelligence gains. But I
30:50
Speaker 2: don't think it's perfectly insulated, and I think that narrative
30:52
Speaker 2: might start to shift over the next few years.
30:54
Speaker 4: Having watched some of the videos on the robotics end
30:57
Speaker 4: of them folding a shirt of laundry or trying to
31:00
Speaker 4: open a glass door of a shower, Like, I think
31:02
Speaker 4: the construction workers have some time because those are very
31:06
Speaker 4: simple tasks for you, and I take a tremendous amount
31:09
Speaker 4: of complexity for a robot to I'm not saying that
31:12
Speaker 4: it couldn't get there, but and in you know, the
31:15
Speaker 4: auto manufacturing sense on the assembly line, I get it, like, yeah,
31:19
Speaker 4: there's been robotics there and there will continue to be
31:21
Speaker 4: more of those. But if I think of that worker
31:24
Speaker 4: out there in the Florida Sun Building, a you know,
31:27
Speaker 4: residential compound of all these different apartments and the movements
31:30
Speaker 4: that need to.
31:31
Speaker 5: Go there, pretty cool. We'll see it's complex.
31:33
Speaker 2: Yeah, let's take a quick break. When we come back,
31:37
Speaker 2: new plan on home construction and Congress trying to pass
31:42
Speaker 2: a law on who can buy homes, who can rent homes, etc.
31:46
Speaker 2: We'll be covering that next year on the Financial Exchange.
31:49
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32:59
Speaker 2: So we haven't covered this in a little while, but
33:02
Speaker 2: you may recall prior to the breakout of warre in Iran,
33:05
Speaker 2: we were talking a lot about housing affordability and the
33:08
Speaker 2: President actually pushed for a ban on institutional investors owning
33:14
Speaker 2: rental single family homes for rent.
33:17
Speaker 3: That was a big push.
33:18
Speaker 2: It had been initially pushed by Elizabeth Warren, the president
33:22
Speaker 2: back did as well. They seem to agree on something
33:24
Speaker 2: for what had to be the first time ever, and
33:27
Speaker 2: uh we criticized it pretty heavily. Here is my take
33:32
Speaker 2: on that type of ban is it really disincentivizes single
33:39
Speaker 2: family home construction and a lot of it today is
33:42
Speaker 2: done by institutional investors who want to rent out the properties.
33:47
Speaker 2: In my mind, positive news and in other people's mind,
33:50
Speaker 2: I'm sure bad news. Here is the House just passed
33:54
Speaker 2: a bill or sorry, they're voting on a major bill
33:57
Speaker 2: as soon as today, called the twenty first Century Road
34:02
Speaker 2: to Housing Act. On the good news side, it does
34:04
Speaker 2: reduce builder regulations, makes it easier to develop factory built homes.
34:09
Speaker 2: Again my opinion, there would be anything you can do
34:12
Speaker 2: to reduce regulations that are unnecessary on construction is a
34:18
Speaker 2: step in the right direction. I'm not saying they will
34:20
Speaker 2: be extremely high quality houses. I'm just saying that they
34:23
Speaker 2: will probably it's all you want. And it does remove
34:28
Speaker 2: one of the key pieces of that institutional investor one.
34:31
Speaker 2: So in the Senate pass bill, there was a rule
34:34
Speaker 2: where if an institutional investor built new homes for rent,
34:40
Speaker 2: it would have required those investors to divest of the
34:44
Speaker 2: homes within seven years. The House version strips that out,
34:48
Speaker 2: so it still bars institutional investors from buying single family
34:52
Speaker 2: homes for rent, but it does not prohibit them from
34:57
Speaker 2: constructing them. So basically, if you want to go build
34:59
Speaker 2: a thous and unit development and rent them all out,
35:02
Speaker 2: you can do so without any restriction that you sell
35:04
Speaker 2: them eventually. This only bars you from going and buying
35:07
Speaker 2: up a bunch of those homes to rent them.
35:09
Speaker 3: I don't really like that either.
35:11
Speaker 2: But the big thing that we've been focusing on is
35:13
Speaker 2: how do you incentivize more construction, And this at least
35:16
Speaker 2: does not remove an incentive there. If you want to
35:19
Speaker 2: build the homes and rent them, you are allowed to
35:21
Speaker 2: do so under this House proposed bill. You just can't
35:24
Speaker 2: go and buy a bunch of them. So what do
35:27
Speaker 2: I think that does. I think in a moment of crisis,
35:30
Speaker 2: it might make housing prices fall more. So, yeah, we
35:33
Speaker 2: might regret this if we go face another eight twenty years.
35:35
Speaker 4: From exactly because they make the point that in two
35:37
Speaker 4: thousand and eight that institutional investors scooped up a bunch
35:40
Speaker 4: of properties and pennies on a dollar yes, in retrospect
35:44
Speaker 4: we look at it that way, but it was liquidity
35:47
Speaker 4: that was created in the system that was able to
35:50
Speaker 4: snatch up those properties then. And that's the whole investing
35:53
Speaker 4: world in general, right with buyers and sellers. You're constantly
35:56
Speaker 4: trying to match this too, and it's important to have
36:00
Speaker 4: in the system when things get tough. And to your
36:01
Speaker 4: point of now these existing single family homes that would be.
36:05
Speaker 5: Sold, you have one less buyer. Yeah, in the market.
36:09
Speaker 4: It was an area where I wasn't overly concerned about
36:13
Speaker 4: the impact. If you look it's two to three percent,
36:15
Speaker 4: I believe if single family homes are owned by corporations.
36:18
Speaker 4: When you brought it out to the housing in the
36:20
Speaker 4: country in general, tire because there's obviously those multi family
36:23
Speaker 4: properties that are corporately owned. I just don't know if
36:28
Speaker 4: this was as big of a problem on my end.
36:30
Speaker 4: Granted we live in an area where there's not a
36:31
Speaker 4: lot of it, but.
36:32
Speaker 2: I don't think it's gonna have much of an impact
36:34
Speaker 2: at all. Yeah, again, it's I think the right thing
36:36
Speaker 2: to do. It's small, work around the edges to reduce
36:39
Speaker 2: some of the regulations. But you know, is it going
36:41
Speaker 2: to suddenly or even over the next five years make
36:44
Speaker 2: housing more dramatically affordable. No, because that really needs to
36:47
Speaker 2: be done on the local level. Yeah, there's really very
36:50
Speaker 2: little unless you're going to come out with a massive
36:52
Speaker 2: carrot and stick to incentivizement as Pallas to change that
36:56
Speaker 2: can be done to make housing more affordable. Other than
37:00
Speaker 2: the local stuff, which you know we're seeing here in
37:03
Speaker 2: Massachusetts currently, it ain't.
37:04
Speaker 3: Working terribly well.
37:06
Speaker 2: I forgot about a new law in Massachusetts. There was
37:08
Speaker 2: a law passed August of last year. I believe it was, yeah,
37:13
Speaker 2: August of last year, that banned brokers in the state
37:18
Speaker 2: from receiving broker's fees directly from tenants. So this is
37:25
Speaker 2: common practice. I paid one for my first apartment in
37:28
Speaker 2: Somerville pay one month's rent to the broker as a
37:32
Speaker 2: giant fee. That was banned on August first, and apparently
37:36
Speaker 2: nobody cares.
37:36
Speaker 5: They're still collecting it. Yeah.
37:38
Speaker 4: I spoke with someone over the weekend who rented a
37:41
Speaker 4: place effective July first in Boston, and she had to
37:45
Speaker 4: pay half the month's fee, which was down from what
37:48
Speaker 4: she previously did, which was the full month, but she
37:49
Speaker 4: still to pay the half month.
37:50
Speaker 5: And then she found that.
37:51
Speaker 4: The service was even worse where she just was not
37:54
Speaker 4: getting any help from the realtor at all, and she
37:56
Speaker 4: tried to call the listening directly, they wouldn't pick up
37:59
Speaker 4: her calls unless it was a realtor. So it seems
38:01
Speaker 4: like everybody is kind of in koudes to lock that feed.
38:05
Speaker 2: Going to mass dot gov, you can apparently be entitled
38:07
Speaker 2: to triple the amount of any illegal fees paid, so.
38:10
Speaker 3: It might be worth inquiring about that.
38:12
Speaker 2: We got to take a quick break, but a lot
38:14
Speaker 2: more to cover in the second hour of the financial exchange.
38:17
Speaker 3: We'll be right back. Stay tuned.