The WORST Report Yet | This will Drag us into Depression.

is by far the worst report yet now many

of you might not necessarily care about

this particular company but what they

say is such a red flag for not only the

economy but also hopefully deflationary

pressures to come in the future as

consumer spending Falls due to the

weight of what's being seen

I think it's a report that we ought to

look at together and so I've got the

earnings called transcript and let's get

right into it so this is the nation's

third largest homebuilder and just take

a look at some of the things they say

the very first sentence from the CEO

just yesterday is we find ourselves

delineating between the favorable demand

environment that existed earlier this

year which drove the current earnings

versus the more challenging current

conditions as we move through the

quarter you can almost see the ebb and

flow of Demand with interest rates I

mean that's not a surprise and they're

finding that people are canceling

transactions at a rate that's an

increase of 240 percent of last year

last year we were at 10 cancellations

during this time now we're at 24

that's an increase of 2.4 x right and

they're finding that people are

canceling home purchases for two reasons

one the a can no longer afford a home

because of high interest rates or B

they're unsure if now is the time to buy

a home so that psychology of pain or

fear or making a bad decision

and they believe here that because of

the fed's latest commentary about

aggressively raising rates to control

inflation for at least the remainder of

2022 and then likely holding rates

higher for longer we could see the most

significant impact on today's consumers

currently showing up as influencing

housing demand but as soon as housing

wealth goes down we tend to see the

entire economy slow down as well and

it's gotten so bad that this particular

company is now aggressively discounting

their outstanding inventory aggressively

discounting and they talk about

protecting their share within markets

that is how many homes they sell

compared to the other home builders and

the way they're going to do that is by

not being margin proud in other words

they're going to dump Properties by

cutting prices to make sure they could

still sell homes and maintain that share

of homes uh for sale and they're

basically dumping out of properties not

only are they dumping out of properties

but if you look down here you can see

that they canceled

24 million dollars of deposits you can

see that actually at the last slide here

that's not highlighted where they say

nobody wants to write off these 24

million dollars in deposits so basically

they had deposits on land that they were

going to develop and they said hey look

this is about 800 million dollars of

land we don't want to buy it anymore

because it's just a bad deal so we're

gonna walk away on our approximately

three percent deposit and we're not

going to buy that land to develop to

build homes on that's about 800 million

dollars that's not going into the real

estate market that 800 million dollars

guess where it goes instead and this is

where you always see with real estate

companies a Divergence between how the

stock performs and how the actual

underlying company performs

Pulte Homes and a lot of the home

builders are finding that their stocks

are so undervalued right now that rather

than go buy more land or actually go

develop more real estate what they're

doing is they're buying back their own

stock Pulte bought back almost nine

percent of their own stock over well

since the beginning uh since January of

2022 which is absolutely a huge amount

nine percent of their outstanding stock

bought back it's crazy uh how much

they've bought back and they're doing

that because they see a better return on

buying their own stock than they do on

actually buying land right now in fact I

frequently talk about the three wedge

deals that house hack is going to be

able to get house hack is my real estate

startup number one wedge deal is where

you buy real estate below market value

because you're buying fixer-uppers and

you're fixing them up at a lower price

than what anybody else can that's kind

of like flipping homes but we're not

home flippers we're doing long-term

rentals at short-term rentals and so

that's wedge number one is buying a good

deal that's how you make money by let's

say buying a five hundred thousand

dollar home in say a seven hundred

thousand dollar neighborhood putting in

50k of uh repairs you're up 150 000

right that's wedge number one wedge

number two is selling parts of the

portfolio while retaining management and

some of the upside to Pension funds who

are looking for cash flow that's the

second way that a house act can get a

wedge deal and the third way you can get

a wedge deal is by buying your stock

back at a discount when the market is

panicking and that's what the home

builders are doing it's actually smart

and it's a tax efficient way of of

increasing shareholder value anyway

so uh with the current dramatic and

ongoing interest rates likely being the

biggest concern for most consumers and

other factors in play at play including

inflation fear of recession or

increasing concerns about job loss like

this is just an all-around on one hand

bad report but on the other hand I hope

the FED reads this report and they're

like yes spend less money consumers

spend less money be worried be fearful

about inflation be fearful about

recession be fearful about job loss

please now they talk about having a more

defensive posture for the near term they

talk about having 28 fewer orders and

what I found interesting was that first

time home buyers actually represented

three percent more of their home buyers

in other words people who put generally

put very little money down like three or

five percent down so they're borrowing

most of it which means sure they

apparently have the salary to qualify

but they don't they don't need a lot of

a down payment and the older move up

buyers

are buying at a 45 reduced rate probably

because they're like yeah no been

through a housing crash before ain't

doing it again the first time home

buyers have it

oops anyway uh let's see here homes

under construction okay let's see higher

financing incentives this is just a way

that they're hitting their margins

trying to dump these properties oh this

was fascinating look at this

given the change in buyer demand and the

resulting impact on the Turning of our

own land we currently expect that our

land spend will drop materially next

year now that I thought was really

interesting because what they're

actually and here's that nine percent

buyback at the top what they're saying

here is hey look we we haven't like

actually fully hit the brakes yet and

this is kind of something that you saw

at Google as well where Google's like

yeah look you know we we're getting

reamed you know we're down like eight

percent today and uh we hired way too

many people we're trying to refine our

Focus uh we kind of lost our focus and

hired too many people but a hiring will

slow materially in Q4 and next year and

I'm like damn folks we've known about

this disaster coming since January

and you're just now refining uh and and

so I think it's interesting how how long

everything takes honestly that's

probably been one of my biggest lessons

of this cycle is

it doesn't have to go fast you know just

because I I expect the FED uh to rug

pull us and go dirty doesn't mean the

bot at the bottom of the market comes

soon it could come years later uh and

and we expect that for for Real Estate

as well the bottom of the market

you know at first I thought it was going

to be Q2 of 2023 now I think it'll be

more like q3q4 and and maybe when we get

to Q2 2023 I'll be like damn the bottom

of real estate market might not be until

q1 of 2024. I don't know but I will say

everything's taking way longer than

expected it's lasting longer and it's

been a lot harder than expected uh and

you're seeing that in these earnings

calls as well or companies are actually

just now really starting to cut back

it's crazy uh so let's see what else we

have here well we expect the coming

quarters will be difficult they're still

positive and bullish in the long term

that is people buying homes in the long

term of course and remember generally

home ownership rates decline during

these housing crashes so it's a great

opportunity for investors to increase

their market share which is unfortunate

for for individuals trying to get in but

that's just the way it is uh talk a

little bit about market share here with

incentives

uh interest rates okay here we go

uh 35 of spec Ah that's not so

interesting about the market average

selling prices are coming down with

margin consequences trying to give you

the juiciest here yeah so they talk a

little bit about their 24 million dollar

write down how that would have

represented 800 million dollars worth of

properties uh that is Lots land that

they would have bought uh what else is

interesting is they talk about here how

you saw a little bit of a dip in rates

in August and this is true we did see a

dip in rates in August and we saw some

activity around then where people came

off the fences but then rates went

higher again in fact if you jump over to

this PDF I have which actually has the

10-year treasury listed right here you

can see that this green section right

here is approximately where August is on

the 10-year Treasury and uh you know

August ended at 3.26 well we're at like

four percent now so we're way higher I

mean mortgage rates are now at an over

average of seven percent it's quite

quite remarkable uh so then look at this

one here in many cases their buyers are

walking away from sizable deposits

which they say doesn't even make a lot

of sense because they're potentially

walking away from these deposits that

are so large that's like Dude like even

if prices went down 10 you just lock

that in by walking away from your

deposit and this is where uh I mean

that's just an example generally people

put three percent down as a deposit but

just as an example uh because that's

that's the argument they're trying to

make here but then they say but that's

where you really get into the psychology

yeah I mean just like the courses I have

on building your wealth they're designed

for the psychology of money both real

estate negotiations Property Management

uh stocks investing for the long term

right that's what they're all about

you'd use that Halloween coupon code

down below we going live in a course

member live stream after this going

through some more uh important earnings

calls but boy oh boy uh when you start

talking about companies going man the

psychology of our customers is really

changing that's when you know we have

more pain coming uh and and it's just

beginning and they do mention that some

of the areas that are doing the best and

this is very important for house hack

remember if you're an accredited

investor make sure you go there to

househack.com and that uh they're really

focusing on areas with attractive job

growth and warmer weather attractive

climates which they suggest are the Sun

Belt region so like the southeast and

Florida

uh Texas very interesting and uh so you

are actually seeing those areas right

now at least get hit less than you are

West Coast areas even though West Coast

areas have better uh job or a better

climate uh it does seem like job growth

is going towards the southeast and the

South anyway

uh they also notice look at this folks

trades trades right plumbers

electricians those are the trades that

are feeling the slowdown in the industry

right now the front end trades like

underground plumbing blah blah blah in

other words when trades people start

feeling the Slowdown what does that mean

recession folks one person spending is

five dollars of somebody else's spending

and

it's just now slowing

this is like

this is crazy that 10 months after I

made my January videos about the FED

forcing a recession

we're just now seeing companies like

yeah

now we're slowing down now we're

canceling purchases now we're slowing

hiring

and they're not even at that max level

of slowing down yet they're so slow and

not Nimble it's scary anyway you're

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