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Experts: Zoning Changes Most Effective Path to Boosting Housing Supply

When asked what could be done to increase housing supply, a panel of experts surveyed by Zillow chose relaxing zoning rules as the most effective option.
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*Expectations for future home price growth among a panel of 100+ experts and economists is the most optimistic ever in a quarterly survey that dates to 2010.

*The panel expects new construction to slow in the coming years, with high costs as the main barrier. Last quarter, the same panel predicted total inventory would rise later this year thanks mainly to more existing homes being listed for sale. 

*Relaxing zoning rules would be most productive to increase new housing supply, according to panelists.


Relaxing zoning rules to allow for more and/or more-efficient new home construction would be the most effective way to increase supply in a housing market currently near historic inventory lows, according to the latest Zillow Home Price Expectations Survey.[1] On the current path, those experts anticipate new construction growth to stall and home prices to rise, resulting in fewer of today's 30-somethings owning homes.

High costs are expected to slow new construction momentum, a blow to home shoppers already facing an intensely competitive market with relatively few available homes when compared to the number of interested buyers. On average, the panel expects new housing starts to end the year 2.5% below December 2020 levels, and to fall an additional 2% by the end of 2022. Panelists cited the high costs of labor, materials and land as the biggest headwinds for home builders.[2] The Zillow Home Price Expectations Survey is a quarterly survey of more than 100 real estate experts and economists nationwide, sponsored by Zillow and conducted by Pulsenomics.

The results are somewhat surprising given builder confidence that has consistently stayed at very high levels since last summer, though it has fallen somewhat from highs reached towards the end of 2020. Builders seem to sense a golden opportunity to help address the shortage of available homes, especially as demand appears poised to stay high for years to come. But that optimism may not be enough on its own to make a meaningful dent in the massive shortfall in construction since the Great Recession. 

When asked what could be done to increase housing supply, relaxing zoning rules was the top choice — 56% of panelists chose it as one of up to three main factors to help increase housing supply, and it was scored as the most effective single strategy. Previous Zillow research has found even a modest amount of upzoning in large metro areas could add 3.3 million homes to the U.S. housing stock, creating room for more than half of the missing households since the Great Recession — a major reason for today's frenzied housing demand. A majority (57%) of homeowners previously surveyed by Zillow previously said they believe they and others should be able to add additional housing on their property, and 30% said they would be willing to invest money to create housing on their own property, if allowed.

Other panelist recommendations for increasing housing supply included easing the land subdivision process, relaxing local review regulations for projects of a certain size, accelerating the adoption of new construction technologies and increasing training to build up the construction workforce. 

Of course, new construction isn't the only path to more inventory — a majority of the same panel, when surveyed in Q1 2021, said they expect housing inventory to begin growing again this year, with an increase in existing homes being listed for sale being the most likely catalyst for inventory growth. Previous Zillow research has shown widespread coronavirus vaccine distribution could make some 14 million households newly comfortable moving that don't necessarily feel that way now. 

With housing demand showing no signs of slowing from a pandemic-fueled boom in the second half of 2020, the expert panel again adjusted their home price growth expectations upward. The panel's average home value growth prediction for 2021 is 8.7% — the highest for any year since the inception of the quarterly survey in 2010. That's up from 6.2% last quarter and more than double the expectation from the Q4 2020 survey (4.2%). Home value growth is expected to slow to 5.1% in 2022, according to the panel — still strong growth compared to a historical average of about 4%. 

"A profound shift in housing preferences, adoption of remote employment, low mortgage rates, and the recovering economy continue to stoke demand in the single-family market and drive prices higher," said Terry Loebs, founder of Pulsenomics. "Strict zoning regulations, an acute labor shortage, and record-high materials costs are constraining new construction, compounding disequilibrium, and reinforcing expectations that above-normal rates of home price growth will persist beyond the near-term."

Panelists were also asked for their expectations on the path of mortgage rates and the homeownership prospects for millennials over the next few years. Average rates for a fixed 30-year mortgage currently sit near 3%, and panelists said they  expect a small rise to 3.45% by the end of the year, continuing to 3.99% at the end of 2022. That would add $55 to a monthly payment on a typical home at the end of this year, and $124 at the end of 2022.[3] Still, this would represent a bargain historically. Average rates were near 5% as recently as 2018, and they started the 2000s above 8%. 

In large part due to affordability challenges from rising home prices, the panel on average expects homeownership among 35-44 year-olds will drop slightly over the next five years, when that group will be dominated by millennials. The majority (54%) of experts who expect homeownership to fall among this age group by 2026 cited worsening affordability — via higher mortgage rates and/or home prices — as the top cause. 

Of the more optimistic panelists who anticipate more homeowners in this age group in coming years, most (61%) said an increased preference to own instead of rent would be the primary driver. This could possibly be a result of how the pandemic and the rise of remote work options has changed what many say they want and need in a home


[1] This edition of the Zillow Home Price Expectations Survey surveyed 109 experts between May 11, 2021 and May 25, 2021. The survey was conducted by Pulsenomics LLC on behalf of Zillow, Inc. The Zillow Home Price Expectations Survey and any related materials are available through Zillow and Pulsenomics.

[2] The verbatim answer options most often cited by panelists as headwinds were "high labor costs/shortage of skilled construction labor," "high/volatile materials costs," and "high land costs/lack of developable parcels in desirable areas."

[3] Assuming a 20% down payment on a home purchased for $280,370, the typical home value in April according to the Zillow Home Value Index.

The post Experts: Zoning Changes Most Effective Path to Boosting Housing Supply appeared first on Zillow Research.

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What’s Tougher: Finding Drivers Or Trailers?

What’s Tougher: Finding Drivers Or Trailers?

By Todd Maiden of FreightWaves,

Supply headwinds facing the trucking industry were front and center at an investor conference on Wednesday and Thursday. While executives said driver recruiting…



What's Tougher: Finding Drivers Or Trailers?

By Todd Maiden of FreightWaves,

Supply headwinds facing the trucking industry were front and center at an investor conference on Wednesday and Thursday. While executives said driver recruiting and broader supply chain bottlenecks are ever so slightly easing, the procurement of equipment has gotten tougher.

“I would predict at this juncture, in our looking out at the trailer OEMs (original equipment manufacturers) and the tractor OEMs, that it could even be more difficult in 2022 on production and delivery than it was in 2021,” said Mark Rourke, CEO and president of Schneider National, at the Stephens Annual Investment Conference held in Nashville, Tennessee.

Finding trailers won't get any easier in 2022 (Photo: Jim Allen/FreightWaves)

Lack of trailers becoming the new driver shortage?

Equipment purchasing for truckload carriers will be below normal replacement in 2021 given semiconductor and parts shortages as well as COVID-related labor issues that are plaguing the OEMs.

Derek Leathers, Werner Enterprises chairman, president and CEO, said current tractor and trailer orderbooks extend well beyond the OEMs’ manufacturing capacity for all of next year, meaning the industry fleet, which has gotten older and smaller during the pandemic, won’t be increasing anytime soon.

“I think you see continued contraction or at best case stabilization in ’22 but with an older fleet,” Leathers said.

Werner’s average truck age was 1.8 years heading into the pandemic with trailers 4 years old on average. While a recent acquisition skewed average ages slightly higher, an inability to get all of the replacement equipment wanted has really pushed those averages up, to 2.1 years and 4.4 years, respectively.

Leathers said Werner wants to refresh equipment but “there’s no line of sight to when that moment is, it’s certainly not in ’22.”

“The best-case scenario is you may see some return to normalcy by third quarter ’22 and that’s way too late to have any impact on the year in terms of additional capacity. So I think we have a structural cap that’s different than anything we’ve seen historically.”

Eric Fuller, president and CEO at U.S. Xpress, also pointed to the third quarter as the earliest date for relief. He said the OEMs are guiding to “a few more months” for tractors that should have already been delivered.

“A number of the OEMS are going back to some of their larger orders and reducing the amount of tractors they’re actually going to be able to produce in 2022,” Fuller said. “I think the trailer situation is worse. In some cases, to get a significant order we’re being told it could be multiple years … 24 months, 36 months.”

Trailer manufacturer Wabash said it would build only 50,000 dry van trailers next year compared to more than 57,000 in 2019. The company’s backlog, which extends into 2023, has increased to more than $2.3 billion from $1.9 billion at the close of the third quarter. It’s in the process of converting refrigerated manufacturing capacity to dry van production lines but that won’t be completed until early 2023.

Management from J.B. Hunt said delays in equipment deliveries will result in holding onto trade-ins longer than originally anticipated, which will drive its cost of service higher. The increased maintenance expenses associated with running older equipment will be an incremental component of its customer’s rate structure in 2022.

Less-than-truckload carrier Yellow noted a lack of trailers throughout the supply chain as trailing equipment sits longer at shipper facilities that are dealing with issues recruiting and retaining workers.

Yellow CEO Darren Hawkins said he’s most concerned about being able to take delivery of the trailers Yellow has ordered for 2022. He said the company can postpone planned trailer retirements if needed but noted that overall trailer utilization has become a material burden on operations.

“We do not have access to our own equipment as readily as what we’ve seen in the past,” Hawkins said. “And then when you do get that equipment, it’s in the wrong part of the country and we’re having to reposition it.”

Yellow would normally use the rails to reposition trailers but given current network congestion, they have more freight than they can handle.

“I have not seen it ease. I actually feel like demand is expanding for our services,” Hawkins added.

He said Yellow is focused on making timely freight pickups as that is its customers’ biggest concern. “They’re not as focused on transit times as they are getting their freight picked up and getting it into a system and being able to tell their customers that it’s actually in transit.”

Driver hiring issues have eased … kind of

Most trucking executives said that multiple rounds of pay increases and sign-on bonuses, as well as the end of enhanced unemployment benefits in September, have helped driver recruiting, but only on the margins.

Fuller noted that August was the toughest month for driver hiring, with only slight improvement since. “If August was a 10, it’s a 9.5 [now].”

J.B. Hunt said difficulties sourcing drivers have plateaued but at a high level.

“For drivers, we’re at a high watermark and we’re holding,” Shelley Simpson, chief commercial officer and EVP of people, commented. She said driver recruitment hasn’t really kept the company from bringing on new business because it can utilize its digital 360 freight platform for capacity and backfill with permanent resources later.

But she said the labor headwinds extend beyond drivers. Difficulty finding workers throughout all levels, from maintenance techs to office employees, has been a burden for the company.

“In the past, we were able to tweak pay or turn pay and that typically would fix 95% of the problem. Today, that’s not the case when it comes to labor,” Simpson continued.

The American Trucking Associations’ estimate of the current driver shortfall is approximately 80,000. But the organization sees that number moving to more than 160,000 by 2030.

“It’s the most difficult driver market I’ve ever seen,” Leathers said. “Has it stabilized at very difficult? That seems to be the case. So it’s staying very difficult but it doesn’t seem to be worsening.”

Searching for a cure

Werner has been bringing on drivers through its academies. It had four additional driver schools operating at the end of the third quarter, 17 in total. The company will have 22 open by the end of the first quarter. Driver sourcing costs and labor expenses incurred as a result of equipment downtime due to parts shortages led Werner to miss third-quarter expectations.

When asked about potential solutions to the driver issue, Leathers said he sees the most potential in opening the driver pool to include candidates as young as 18 years old. He said the plan to reduce driver ages would be “one of the largest advancements for safety” the industry has seen in a while.

“These are true apprenticeships. This is not, ‘You’re 18 years old and here’s the keys to a truck and good luck.’” He said the current proposal for preparing these individuals would require multiple months of training with experienced drivers as well as curfew restrictions. He believes it would also allow the industry to recruit people “from the front of the class.”

“What do you get at age 21? If you wait to 21 because you think that there’s something magical about the number, you get the people that were unsuccessful as an electrician, a plumber, a roofer or welder versus going to the front of the class and getting the best and brightest and putting them in a multi-month apprenticeship.”

He said relaxing hours of service rules wouldn’t be fair to the driver. “They should not bear on their backs our inefficiencies,” Leathers said, referring to the increase in the amount of dwell time drivers are experiencing due to congestion throughout the supply chain.

Leathers doesn’t think increased vehicle or cargo weights will help either “at a time when our nation’s infrastructure is already crumbling.” He said it will take at least a decade until recently approved infrastructure money results in material improvements to the highways.

Rourke said a new rule for entry-level candidates, requiring training from a certified institution listed on an approved provider registry, will further limit driver resources.

“For the state licensing, you have to then verify where this schooling took place and the accreditation of that school, which has a minimum number of hours, a minimum curriculum. It isn’t just, ‘I just took the written test, let me go out and take a test and I get a CDL.’ So it radically changes that entry point into the industry.”

Tyler Durden Wed, 12/08/2021 - 15:25

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SocGen Is Telling Its Nervous Clients “Don’t Leave The Party Yet” – Here’s Why

SocGen Is Telling Its Nervous Clients "Don’t Leave The Party Yet" – Here’s Why

A surge in cross-asset volatility over the past two weeks has left investors with many questions about its nature and implications and whether it is safe to buy…



SocGen Is Telling Its Nervous Clients "Don't Leave The Party Yet" - Here's Why

A surge in cross-asset volatility over the past two weeks has left investors with many questions about its nature and implications and whether it is safe to buy the dip (technically there is no longer a dip).

In a note seeking to ease client concerns, SocGen strategists Jitesh Kumar and Alain Bokobza say "don’t leave the party yet" because they found that the main trigger for the recent market turmoil has been "investors seeking to deleverage their more illiquid/expensive assets to protect profits as the year ends." And while the market may be shaken by residual liquidity tremors over the next couple of weeks, "recent trends nevertheless underpin our recommendation to remain invested and stay overweight in equities, real assets (including commodities), and the dollar."

Drilling down on the increasingly nervous market since the Fed’s recent hawkish turn and the move higher in rates since the September FOMC meeting, SocGen points to several other catalysts that have kept investors on their toes, including:

  1. collateral scarcity in Europe, fueling very high demand for ‘safe’ assets, wider asset swap spreads and a wider cross-currency basis swaps due to a drop in ECB net issuance;

  2. the threat of COVID Delta-variant related lockdowns in Europe (Austria, Germany) even before the emergence of Omicron;

  3. the 6%+ CPI print in the US, followed by the re-nomination of Jerome Powell at the Fed, enabling him to signal scope for a faster taper and earlier rate hikes, stoking policy error fears;

  4. credit spread widening against plummeting German bond yields, while corporate bond issuance has remained robust; and

  5. high pension funding ratios fueling demand for ‘safer’ assets (bonds) to rotate into.

One read of the above is that these combined pressures have increased demand for bonds, while Omicron spooked some investors into cutting over-extended positions on the Friday following Thanksgiving amid low market liquidity. These pressures triggered very sharp moves in some widely owned illiquid assets, including:

  • rotation from high beta stocks into quality stocks;

  • a shift in preference to US equities/large cap tech from small caps/other overseas investments;

  • increased hedging to lock in gains before year-end, triggering higher equity/credit volatility;

  • a sharp rise in funding currencies at the expense of high yielders/EM, leading to a weaker dollar.

Additionally, as the SocGen duo notes, some highly extended inflation plays have been among the most impacted, e.g. both crude oil and breakeven inflation linkers saw substantial one-day drops on 26 November as shown below (the French bank is quick to note that it remains overweight on both commodities and inflation-linked bonds as they provide protection against higher inflation prints and a Fed tightening cycle over 2022).

The market turbulence also took an already extended VIX complex up to the highest levels since the March 2020 crash. So illiquid was the market that the VIX bid/offer spread exploded to 4 vol points, but here too SocGen thinks the Left Tail risks are in fact a manifestation of a lack of liquidity in downside hedges

But how does the sharp risk off episode square with dollar weakness - after all the dollar usually surges when there is a dump in risk.

According to SocGen, dollar weakness coinciding with broader market weakness "was unusual but makes sense when seen through the deleveraging lens." The chart below left shows that during the turmoil on 26 November, the typical funding currencies (EUR, JPY, CHF) strengthened while EM currencies (most of which are high yielders) weakened. This had the overall effect of weakening the broad dollar, especially in the G10 space. However, this trend is expected to reverse and take us back to a strong dollar environment given that we see a full Fed hiking cycle ahead of us (unless of course Omicron or whatever variant comes next ruins these plans).

Looking at actual stock positions, SG’s derivatives team notes that options positioning on US small caps had been increasing throughout October. Therefore, it says, "the risk-off episode came at an inopportune moment for some well invested market participants, who likely had to reduce risk in US small caps faster than they would have preferred." As can be seen in the chart above right, Russell 2000 index turnover in the cash market was overwhelmed by the futures market on 26 November, triggering large intraday moves.

Separately, SocGen also points to the combined position changes visible in the CFTC data for hedge funds and asset managers which it says provides further evidence of the pressure on Russell 2000 futures, which in aggregate saw $5.4bn in selling in the holiday-curtailed last week of November (23-30 Nov data). This was the largest weekly sale of Russell 2000 futures as per CFTC data in more than four years.

In contrast to small caps, positioning on large cap equities has not been under the same pressure. Asset manager + hedge fund flows in S&P500 e-mini futures totalled -$6.4bn in the last available dataset, a relatively small amount for the S&P500. More tellingly, the overall flow on the Nasdaq 100 was slightly positive over this period at +$0.8bn, as shown in the right-hand chart above.

Generally speaking, short-term repo is also a useful indicator of the demand/supply profile of major equity indices. A sharply negative repo rate usually signifies very high demand for balance sheet exposure relative to supply, while a very positive repo rate signifies risk aversion. The chart below shows the 1-month repo rate on S&P500, while the balance sheet pressures faced by banks during the fourth quarter of every year are well known. That said, the current quarter, despite recent weakness in broad equities, has not seen positive repo levels, indicating that US large caps have not been hit by material drawdowns according to SocGen (and their price).

So what should traders do?

In a word, nothing, at least that's the recommendation of SocGen. The bank continues to believe that tightening spells are flattening, and thus recommend being positioned for a flattening of the yield curve, which also supports US stocks that are longer-duration assets and are tilted toward quality. In terms of sectors, long Information & Technology against the financial sector is very well correlated with the trend in the yield curve and is one of our key sector calls linked to the Fed tightening cycle.

Sure enough, the curve has not only flattened at the very long end, but market pricing of the total number of hikes from the Fed over the next few years has also reduced. Hikes previously priced for 2024 and  2025 have all been brought forward to 2023, as the chart below shows. Indeed, as we first showed a week ago, the market is now pricing a small probability of a rate cut in 2025.

One take on these moves is that i) either inflation is not going to be a longer-term problem, and that longer-duration assets should therefore continue to do well, or ii) inflation will be a problem but the Fed will be powerless to do anything about it without blowing up the entire market in the process. Our money is on the latter.

Last but not least, SocGen continues to see support for broader financial markets going into next year as private-sector balance sheets remain strong. To wit, US corporates hold close to $7 trillion in liquid assets and US households have $17 trillion tucked away in deposit and money market funds post the pandemic (then again most of this cash belongs to the 1% with few benefits trickling down to the lower 90%). In short, the French bank believes that there is still plenty of cash on the sidelines and investors will sooner or later need to move away from cash in a 6%+ inflation environment.

In conclusion, SocGen's remains alert to the risks that would flare up in the event of more hawkish central banks as well new COVID variants, but for now it recommends its playbook for 2022, "which is working well so far."

Tyler Durden Wed, 12/08/2021 - 13:46

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Schiff: The Federal Reserve Is Picking A Fight It Cannot Win

Schiff: The Federal Reserve Is Picking A Fight It Cannot Win


The stock market rallied early this week with receding worry about the omicron variant, but the specter of Federal Reserve monetary policy tightening remains…



Schiff: The Federal Reserve Is Picking A Fight It Cannot Win


The stock market rallied early this week with receding worry about the omicron variant, but the specter of Federal Reserve monetary policy tightening remains. In his podcast, Peter Schiff talked about the anticipation of the Fed’s fight against inflation and explained why it’s a fight the central bank can’t win.

US stock markets saw big gains Monday and Tuesday (Dec. 6 and 7) with both the Dow and Nasdaq up over 3%. The catalyst was Dr. Faucci saying the omicron variant of the coronavirus doesn’t appear to be as serious as some of the other strains. With that news, the markets went to work recovering the losses from last week. In fact, the rally has recovered almost all of the losses suffered since “black and blue Friday.”

But it was really a 1-2 punch that hit the markets last week. It wasn’t just omicron. There was also speculation that the Federal Reserve was going to tighten monetary policy even faster after Fed chair Jerome Powell said it was time to “retire” the word “transitory.” and that it may speed up the taper by a couple of months. That would potentially move “liftoff” on rate hikes forward a couple of months as well, with rate hikes coming as early as April or May.

Supposedly, this tiny adjustment in policy is now going to vanquish this inflation threat that up until now the Fed completely dismissed. But now that it recognizes that it underestimated how big the inflation fire was going to be, well, it is going to put it out by simply accelerating the taper a bit and hitting inflation with a quarter-point interest rate a couple of months sooner than it had initially planned.”

Peter said he thinks the relief over the omicron variant will be short-lived because the markets will have to refocus on the elephant in the room — inflation and the Fed’s supposed commitment to fight it. As far as the markets are concerned, even slightly less loose monetary policy is construed as tightening.

So long as the Fed is committed to fighting inflation, it needs to tighten monetary policy, which means the stock market no longer has the wind at its back, but the wind in its face, and as a result of that headwind, the market needs to move lower, and it likely will move lower.”

But the markets still don’t seem to understand that what the Fed claims it’s planning to do to fight inflation amounts to nothing.

There is no way that merely finishing the taper a couple of months early and raising interest rates slightly above zero, maybe 50 basis points – hell, maybe they even go all the way up to 1%. That’s nothing in the face of the type of inflation that we already have. So, if the Fed is serious about fighting inflation, it’s going to take a lot more than what it’s indicated it’s willing to do. And of course, if it actually does that, the markets would implode.

Peter said he doesn’t even think the markets have priced in the small amount of tightening the Fed claims it’s prepared to do, let alone the actual amount of tightening necessary to really take on the inflation dragon.

If the Fed actually applied the type of monetary cure for this inflation problem, the whole economy would get a whole new disease — because we would have another financial crisis. You cannot fight off inflation by raising interest rates and tightening monetary policy without completely deflating the bubble.”

Of course, when that happens, the Fed will abandon the inflation fight and start setting more inflation fires.

That’s the only policy remedy the Fed has for a recession, for a bear market — it is to create inflation. You can’t fight inflation and create inflation at the same time. So, the markets still haven’t figured out the dilemma that the Fed is in, and that ultimately, even if the Fed starts an inflation fight, it’s not going to win it. It’s going to have to surrender because the collateral damage to the economy is politically unacceptable.”

In this podcast, Peter also breaks down the biggest productivity drop in 62 years, explains why consumer prices are heading much higher and real wages lower, talks about America’s sacrifice during WWII compared to the COVID fight, and points out that the US would have to fund a war with China by borrowing money from China.

Tyler Durden Wed, 12/08/2021 - 14:11

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