🏡 Housing Could Be Headed for Trouble

Here’s what you will find in today’s email:

• Quote: Trouble ahead for single family homes

• Tweet: Construction anecdote or economic indicator?

• Chart of the Week: The dreaded inverted yield curve is signaling

• Deal of the Week - Subway could be yours for a cool $10B

• Trend to Watch: Drive-thru grocery Subscribe now

🎤 Quote

“When you have a rise and increase in interest rates like we've had, that is a big problem for housing. Interest rates are like the mother's milk of housing and if you cut it off, you're in big trouble. And when you've had these massive increases in interest rates, it just puts a lot of things to a stop." 

- Bill Pulte, Pulte Capital

This quote is following a recent earnings release from KB Home that shows 68% of their new single family construction was cancelled in Q4 2022, compared to 13% from the previous year!

Not a good sign for single family housing.

Tweet of the Week

As stated, this is anecdotal, and I’m also hearing these stories on the ground. This is an example of a funny story (and a painful reality) that happens in the construction industry, but also could be an indicator of a construction slow down.

In 2022, contractors could get away with high bids and take high margins because the demand was high. Now, these same contractors may be looking for any jobs they can get.

📊 Chart of the Week

The inverted yield curve is one of the strongest indicators of a recession.

In normal conditions, the 30-year Treasury yield should be higher than the 3-month yield, rewarding longer term investors.

In October 2022, the 30-year Treasury yield fell below the 3-month yield. This results in an inverted yield curve, meaning a recession is likely on the horizon.

This chart shows us that the inversion is getting deeper as we head into 2023.

🤝 Deal of the Week

Subway, one of the world’s largest private restaurant groups, with over 21,000 locations, has been exploring a sale, valued at $10B!

This valuation comes close to the Dunkin’ Donuts acquisition by Inspire Brands in 2020 for $11.4B.

With a recession on the horizon, and rising interest rates, it remains to be seen if a buyer will emerge at that price point.

📈 Trend to Watch - Drive-thru Groceries

JackBe, the nation’s first curbside grocer, just opened in Oklahoma. JackBe will operate exclusively as a drive-thru pick-up, with customers ordering ahead from a mobile app.

The store is 17k SF and is able to handle up to 200 order per hour.

While the ultra-fast delivery model never took off, with companies like Jokr, Buyk, and Fridge No More ceasing operations in 2022, grocery pick-up and delivery services have been on the rise .

Rather than the ultra fast 15-minute delivery, this trend is shifting the last-mile component back to the consumer.

That’s it for this week.

There was some negative economic news this week, but it’s not all bad - just take a look at this cute baby penguin!

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