Week 12: Real Estate Woes, Uptrends and Building Faster

March 23, 2022 - Max Osbon (4 mins to read)

Briefing: Investors are buying too many houses while active listings are at record lows. | After a long sell-off markets are likely back in an upward trend. | 50 years ago we were much faster at building physical infrastructure.

Real Estate Woes

A current story familiar to everyone is the difficulty of purchasing a home in 2022. The numbers behind the trend are staggering. In 2016 there were 1.6m active listings in the US, and today, that number is just 400k. Fewer homes for sale creates dramatic bidding wars and an unfairly competitive environment for new families. Furthermore, investors are buying up more housing stock than ever. It’s estimated that 33% of all new and existing home sales are going to investors and not primary owners.

I propose that we take a page out of the NBA leadership book and limit the investor participation rate in US housing stock to 30%. We wrote in Week 37 of 2021, “Per NBA rules, no team can be more than 30% owned by PE firms and PE firms can’t own stakes in more than five teams at once.” NBA team owners are the ultimate capitalists, and even they see a benefit to limiting investor participation. We need more people to have an ownership stake in their country and community.

Real estate is also one of the easiest ways to launder money. All-cash offers don’t require banking intermediaries because there is no mortgage process. The all-cash purchase excludes an integral part of the AML/KYC process (anti-money laundering / know-your-customer). Many luxury buildings are simply stores of value for wealthy international families, including Russian oligarchs. Check out how many lights are on at night in those luxury buildings in Miami, NYC, Boston and SFO, for example.

Individuals have a lot of choices in how they spend their money, but housing is a basic necessity. People need a place to live, and young families can’t compete with Blackrock’s balance sheet. Unfortunately for individuals looking to buy, the trends are against them for at least the next few years. I’m not an active futures market participant, but there are Case Shiller housing futures that trade through the CME to hedge real estate exposure or lack thereof. The Case Shiller futures curve is steep, indicating increasing prices for the foreseeable future.

In addition to setting limits on investor ownership of residential real estate, adding automation to the construction process will help add new homes faster and cheaper. We are putting together an investment vehicle for our clients to invest in construction automation and software that will help speed up the building process to help ease these real estate woes. 


After nearly five months of downward sloping prices, we believe markets have finally found a new base, and the next phase of the bull market is here. Our trend-following metrics flipped positive on Friday for the first time since November, which is a significant moment in our eyes. We have ended our internal buy-strike and have started the buying process with cash accumulated over the past five months. After many high-growth leading companies have fallen 50% or greater, there is now an opportunity to buy high-quality assets at significantly lower prices. Multiples have returned to normal ranges, and some are below the five-year and ten-year averages.

We prefer to buy on the way up rather than trying to time the very bottom. We also average our buying because we never know when we might run into a false positive signal. One potential sign of a false positive in this case could be quarter-end rebalancing. Current estimated rebalancing activities across institutions represent nearly 250 billion of flows out of bonds and into equities. We still need to contend with Covid, Fed tightening, and Ukraine/Russian issues. Buying when fear is high and multiples are in healthy ranges tends to result in attractive outcomes for investors.

Go Faster

Patrick Collison of Stripe, the leading innovator in global payments, maintains a list of “fast” accomplishments in US history. For example:

  • “On August 9, 1968, NASA decided that Apollo 8 should go to the moon. It launched on December 21, 1968, 134 days later.”
  • The Pentagon. The construction of the world’s largest office building was led by Brehon Somervell. The decision to proceed with the project was made on a Thursday evening. Initial drawings were completed that Sunday. Construction started two months later, on September 11, 1941, and was finished on January 15, 1943, 491 days later.

Something happened in 1970 that dramatically slowed the pace of physical infrastructure development. For example:

  • San Francisco proposed a new bus lane on Van Ness in 2001. Its opening was delayed to 2022, yielding a project duration of around 7,600 days.
  • In April 2000, the MTA decided to build the Second Avenue Subway. The first phase, with 3 stations, opened on January 1, 2017. Source: The New York Times.
  • According to Easterbrook, the modern record for delay is a lock on the Ohio river – 30 years and still not finished in 2018.

Many people are attracted to crypto and software partly because it has a culture that celebrates testing and building at high-speed rates. Elon Musk is bucking this trend by dragging skeptics along and pushing boundaries by building physical products faster than most thought was initially possible. For example, he built the Tesla factory in Germany before the permits were issued while the nearby Berlin airport finally just opened after nine years of delays. That was a big gamble that could have ended poorly, but it worked out.



Weekly Insights

delivered to your inbox


This communication may include forward-looking statements. All statements other than statements of historical fact are forward-looking statements (including words such as “believe,” “estimate,” “anticipate,” “may,” “will,” “should,” and “expect”). Although we believe that the expectations reflected in such forward-looking statements are reasonable, we can give no assurance that such expectations will prove to be correct. Various factors could cause actual results or performance to differ materially from those discussed in such forward-looking statements.”

“Historical performance is not indicative of future results. The investment return will fluctuate with market conditions.

Past performance is not indicative of any specific investment or future results. Views regarding the economy, securities markets or other specialized areas, like all predictors of future events, cannot be guaranteed to be accurate and may result in economic loss to the investor.

Investment strategies, philosophies, allocations and holdings are subject to change without prior notice.

This communication is intended to provide general information only and should not be construed as an offer of specifically tailored individualized advice.

While the Adviser believes the outside data sources cited to be credible, it has not independently verified the correctness of any of their inputs or calculations and, therefore, does not warranty the accuracy of any third-party sources or information.

Adviser does not endorse the statements, services or performance of any third-party vendor.

Unless stated otherwise, any mention of specific securities or investments is for hypothetical and illustrative purposes only. Adviser’s clients may or may not hold the securities discussed in their portfolios. Adviser makes no representations that any of the securities discussed have been or will be profitable.

Any IPO alerts are purely informational and should not be construed as recommendations to invest.

Adviser is not licensed to provide and does not provide legal, tax or accounting advice to clients. Advice of qualified counsel or accountant should be sought to address any specific situation requiring assistance from such licensed individuals.

Any case studies or hypothetical client profiles are for demonstration purposes only. They illustrate the breadth and depth of the many clients we represent at various life stages. Any similarities to actual Adviser’s clients past or present are strictly coincidental. Individual advice and results will vary based on each client’s circumstances, objectives and prevailing economic conditions.

Weekly Articles by Osbon Capital Management: