🐇Welcome to the Year of the Rabbit

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

• Quote: What’s in store for the Year of the Rabbit

• Tweet: “Top Economists” speak out on inflation

• Chart: Construction cost inputs decline

• Deal: Meet the new leader in co-living

• Podcast: Zillow founder, Rich Barton, on Business Casual Subscribe now

🎤 Quote

“If you look at the economy and real estate, last year was a year dictated by FOMO. ‘I have to go get mortgage rates for all-time low, I have to go buy something.’ This year, it’s not going to be the same. You’re not just going to jump in and get any kind of loan and offer anything on a house. … If you did just jump in because of FOMO, you’re going to have a whole slew of issues.” 

- Jonathan H. X. Lee, Asian and Asian American studies professor at San Francisco State University

First off - Happy Lunar New Year and Year of the Rabbit!

In the spirit of the Lunar New Year, this quote sums up the real estate market last year (the powerful and impulsive Tiger) and brings us into the new year (the careful Rabbit).

The Year of the Tiger, in 2022, started out booming, and with interest rates rising throughout the year, buyers were scrambling to lock in rates.

The Year of the Rabbit, in 2023, will be a different story. Smart buyers will need to show more patience as pricing and rates stabilize.

You can find more of Lee’s thoughts regarding the Lunar new year zodiac here.

The Takeaway: While a recession seems to be on the horizon this year, those who are patient and cautious may find prosperity.

🐦 Tweet

When Americans are worried about inflation, who better to turn to than The Rock and some guy named DJ Pauly D?

For a reminder on the current state of inflation, December 2022 saw inflation at 6.5% and the Fed has stated that interest rates will remain high until inflation cools.

With these higher interest rates, the unemployment rate is expected to rise to 4.5%, meaning more than 1 million people could be losing their job in 2023.

The Takeaway: Have no fear. While we may be facing some rough economic headwinds, The Rock and DJ Pauly D will be there to lead us through.

📊 Chart

Yay! Construction input prices are declining. Over the past couple years, we’ve seen supply constraints and rising construction prices. Rising construction costs means less affordable housing, as these costs are passed along to the consumer.

Now, construction input prices are coming down as the pandemic supply chain issues seem to be under control.

The Takeaway: At first glance, this looks positive. However, there is still have a war in Eastern Europe and China continues to open up and struggle with Covid. While prices are trending in the right direction, construction input costs will remain an area of focus for contractors.

🤝 Deal

Common, the largest co-living provider in the US just merged with Habyt, the largest co-working company in Europe.

Co-living, for those not familiar, provides a housing solution for adults looking to share a house or apartment. These arrangements can take many forms, but often the terms are flexible, affordable, and multiple housemates share common areas like the bathroom, kitchen, living room, and amenities.

With rising housing costs and affordability concerns, the co-living model is set up for growth.

The Common-Habyt deal looks like a win for both parties. Common currently has 7k units under management, with a pipeline of 18k; Habyt has 8k units under management. Together, they’ll deliver more than 30k units in 40 cities and expected to be profitable this year.

While we saw some co-living players get crushed during the pandemic, most of these companies operated with a master lease model.

The master lease model is an arbitrage strategy, much like WeWork did with the office. The company would master lease a house or apartment, and then they would carve up the space and rent each bedroom, generating additional revenue. This strategy works during good times, but during bad times, like the pandemic, this model becomes unsustainable, as the revenue generated cannot cover the lease payments.

Common operates under a management model, taking a percentage of revenues. While they may still earn less during downturns, they don’t have to worry about the liability of leases.

The Takeaway: With their operating model using management agreements, and the growth of co-living, this new merger is set up as a leading player in the co-living space.

🎙️ Podcast

Rich Barton, the CEO of Zillow, talks with Business Casual about how his company went remote, how it works for his business, and how it impacts housing.

The Takeaway: Remote work is here to stay. We’re seeing labor dispersion across the country and workers are gaining more freedom to live and work where they choose. This has implications across all sectors, as the workplace has been permanently disrupted and many workers can now live where they choose.

That’s it for this week! Thank you for reading.

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