Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.
What it shows is the average size of new single-family houses in the US. And what it tells us is that median and average floor areas are falling. They are now roughly back to where they were in 2010, following the 2007-2008 financial crisis. This is noteworthy because it shows that homebuilders are responding to lower affordability. Interest rates went up, buyers can now afford less home, and so the market is responding by shrinking square footages to reduce sticker prices. It is the same reason that condominiums also tend to follow a similar size trendline (at least here in Toronto); it’s about affordability. That said, if you go back even further in the above chart — to 1999 — the trendline is up and to the right. Meaning that when the market allows, the average new single-family house is generally getting bigger. That also tells us something.
Amazon was founded in 1994 and went public in 1997. By 1999, some 5 years after the company was started, only about 1% of total retail sales were being done online in the US. So you have to give it to Bezos, he saw what was coming and he got in early to help create it. This was not so obvious back in the mid 90s. The internet as a whole was still being viewed with skepticism, especially after the dot-com bubble.
Today, online shopping represents over 15% of total retail sales. (See above chart from Charlie Bilello.) The pandemic pop is over, but it looks like we’ve returned to a pretty clear trendline — up and to the right. I guess the questions now are: When and where does this start to flatline? It doesn’t seem likely that this goes to 100% in the foreseeable future, especially if you include grocery. But it’s going to go a lot higher.
For myself, if I were to exclude food/grocery, I would say that the vast majority (80-90%) of my retail purchases are done online. Even if I’m in a physical store, I’ll often pull out my phone to price compare. If it’s cheaper on Amazon, I’ll just order it there.
Here’s another example.
This past summer when I was in Park City, I discovered the brand Vuori. I had heard of them before, but I had never actually seen or touched their clothes. It’s great stuff. But instead of the store convincing me to buy something, it convinced me that I like the brand and that I should probably shop on their website at some point in the near future. And that’s exactly what I ended up doing. (Sorry Lululemon. You’re still my favorite.)
All of this is perhaps obvious in a world where 15% of total retail sales are happening online. But I would imagine that the retail landscape and our cities will look very different when this number goes even higher. Our cities were different at 1% compared to today at 15%; so imagine what 50% or 80% might be like.
Charlie Bilello shared this interesting housing chart in his weekly newsletter:
Shelter is one of the largest components of the CPI index (about a third). And at 7.9% (see above), this is the highest rate of housing inflation since 1982. However, the shelter component — which is largely a combination of rent on a primary residences and the implicit rent that owner occupants would pay if they were renting their homes — has historically been a lagging indicator. Apparently it has something to do with the way that it’s calculated. So for this reason, the shelter CPI has only increased 14.9% since the start of 2020, whereas home prices nationally increased by about 40% and rents increased by about 20%. It’s also why there appears to be a disconnect (in the above chart) with rents. All of this is to say that we might see shelter jump up a bit further as it continues to record what happened over the last few years.
Bidding wars, which are defined as an offer with at least one other competing bid, declined from nearly 70% of sales at the beginning of this year to about 44% as of July 2022.
Stale inventory, which is defined as a home sitting on the market for more than 30 days, is up 12.5% year-over-year. This is the highest jump since 2012, not counting the spike at the beginning of the pandemic (April 2020).
The number of US homes that cut their asking price over the last 4 weeks is now up to 7.8% as of the first week of August 2022. This is the highest percentage since 2015. The seasonality exhibited in this chart is also interesting.
All of this said, the median sale price for a home in the US is still up 8.2% on a year-over-year basis. Though since June of this year, prices have fallen about 4.1%. I don’t know about all of you, but I’d much rather be buying today than in January of this year.
The latest US consumer price index report was recently published and for the 12-month period ending December 2021, the all items index rose 7.0%. This is the largest 12-month increase since June 1982. Here’s a breakdown:
Gasoline (all types): +49.6%
Used cars and truck: +37.3%
Meats/fish/poultry/eggs: +12.5%
New cars: +11.8%
Food at home: +6.5%
Electricity: +6.3%
Food away from home: +6.0%
Apparel: +5.8%
Transportation: +4.2%
Shelter: +4.1%
The obvious standouts here are the price of gasoline and the price of used cars and trucks. Too much demand and not enough supply, it would seem. But the other conspicuous line item for me is shelter at only 4.1%. Is that it?
As Charlie Bilello points out in his latest newsletter, US rents were estimated to be up about 17.8% in 2021 (the highest increase on record according to Apartment List) and the Case-Shiller US National Home Price Index was similarly up about 19% year-over-year.
I also just glanced at the latest Urbanation rental report that came out today, and condominium rents were up 10.8% year-over-year here in the Greater Toronto Area. So I don’t know about this 4.1% number. But maybe I just missed something in the fine print.
I came across this chart in Charlie Bilello’s latest newsletter. It was under the heading “the great reopening in 2 charts.” The other chart was live nation (so concerts) vs. zoom. Both are showing returns over the last year. And both are showing a similar divergence between in-person and online activities.
Now, I’m not a Peloton guy.
But I know many people who swear (or swore) by them. Maybe it’s because I’ve never been a class guy. I prefer to self direct myself at the gym and I like doing lots of different things. So I have a hard time believing that connected at-home gym equipment can completely supplant traditional gyms. There’s also a social aspect to in-person workouts that I think a lot of people value. I personally find it more motivating to be working out around others.
But this wasn’t the narrative last year. We were all going to move to the country, zoom into our meetings, and then switch to another sitting device and another screen so that we could connect with our trainers. For me, this chart is yet another reminder that 1) cities are resilient and 2) there are always opportunities in the midst of short-term market dislocations.
