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Few young economists present their insights with the authority, accuracy, and humor that this episodes guest brings to the stage. He delivers with charm and candor, rousing and enlightening all who attend his talks. Join us as we have a conversation with Connor Lokar from ITR Economics about leading indicators for the next decade that will position your business to thrive.

Show highlights include:

  • How to know where the US economy is headed by looking at the single family construction industry (4:55) 
  • Why single family homes are still severely underbuilt compared to the pre-Great Recession peak (6:36) 
  • How COVID put the pendulum swing from multi family homes towards single family homes on steroids (8:16) 
  • Why it takes about 11 months for rising interest rates to take a bite out of the market’s momentum (9:43) 
  • When to expect the supply chain chaos to cool down and stabilize (11:19) 
  • The ability to attract and retain labor is going to be a massive competitive advantage in the 2020’s (20:27)
  • Why we’re not in a “Housing Bubble 2.0” compared to an economist (even if it seems like we are) (21:55) 
  • The “Golden Retriever Puppy Mindset” that will make your construction business thrive throughout the 2020s instead of dying (23:11) 
  • Why the 2020s will mimic the Roaring 20’s from 100 years ago (and how to protect yourself from the potential 2nd Great Depression in the 2030s) (35:05) 

To get the most out of this podcast, head over to https://buildernuggets.com  and join our active community of like-minded builders and remodelers.

Read Full Transcript

I think the ability to attract and retain labor is going to be a massive competitive advantage for businesses in the 2020s.

Welcome to another episode of Builder Nuggets, the show where builders and remodelers discover how to build thriving businesses while working less. I'm Duane Johns and together with Dave Young, we share the elements of success that have helped hundreds of contractors like you build better lives.

(00:31): Few young economists present their insights with the authority, courtesy of humor that today's guest brings to the stage from the intimate executive retreat to the standing room, only keynote. He delivers with charm and candor, rousing, and enlightening, all who attend his talks as a millennial. He brings a new perspective to the world of economics, delivering industry leading accuracy to current C-suite executives while forging connections with the next generation of business leaders. It's my pleasure to welcome Connor low car from ITR economics to today's show. So welcome Connor. Thank you for having me gentlemen, thrilled to be here. Yeah, we're happy to have you too. This is a really, the economy is a really hot topic in the construction industry right now. And this is super timely, are people that are surprised that you're a young guy. Are people surprised that a millennial has this broad depth of knowledge in economics and, and what, what got you into the construction industry?

(01:26): Yeah, you know, I would say surprises is definitely a way to put it. I, cause I've been doing presentations basically since I started with ITR back in 2014 and for our, our listeners, you may see a picture of me, but I don't look much older now than I did when I started. So it it's been in my opinion and asset because the expectations are always, you know, almost undefined. They don't know what to expect when I go up there to talk. And so it's always been fun for me to kind of unveil the knowledge that I have, you know, out of kind of, it's just not what you expect. I mean, you, you hear economists, you expect this sagely, elderly gentlemen, you know, probably with some facial hair, which I struggled mightily with theirs. I tried to pandemic mustache. It was horrific. So I'm, I'm glad I'm past that.

(02:14): But yeah, so I just come at it with a little bit different approach, I think, which is refreshing for a lot of folks. And I really try to hit on some of the kind of generational crossover. I think what I'm most excited about is now gen Z is starting to take some of the spotlight and the negative articles that, that millennials, we kind of held that crown for a little while. So now we're kind of pivoting into, you know, making fun of them a little bit, which I'm getting into, which is nice. But as far as transitioning into construction, it, it wasn't necessarily intentional. I, early on when I started with ITR, we have our consulting silos and I, I just, one day I sort of had a critical mass of businesses that were related to construction. Then in terms of trying not to replicate efforts, try to not have to recreate the wheel. It's just, as folks came in there, like Connor does a lot with construction and then all of a sudden I just kept getting more and more. And then that just became, you know, really an area of focus for me and an area that a lot of my clients resided. And so I always just found myself fairly plugged into it.

(03:15): You and I talked earlier and I told you I've been a subscriber to ITR economics about six or seven years now, I was attending, it was a Vistage summit. I want to say here in Charlotte, back in like 2015 and was really impressed by the presentation by Allen and Brian [inaudible], I don't, I'm not sure if you were with them at the time, but the, the forecast that they gave was very impressive. The accuracy that, that, that they tend to give is, is it's an amazing, give us an overview of how you guys do the forecasting, what what's around it, what makes you a little bit different than some of the other things you hear?

(03:48): I think what makes it makes us successful, not just with our forecasting, but communicating our forecast is our reliance on leading indicators. So anyone that follows ITR knows that that's our bread and butter, and it's really our reliance on leading data points. Predictive data points, I guess, is the simplest way where we can look at things today, whether it's the NHB housing market index or interest rates or different trends. And there's a timing relationship to those where we see an uptick over here and, you know, X number of months, quarters, sometimes years, depending on how long, the lead times that translates to could be an upward thrust in the market. You know, as we look at housing construction, for example, or a pullback, I think what, particularly for our construction audience, what I am always fascinated by and in what I think is particularly interesting about construction, both residential and non-residential are those two industries and sectors have probably one of the most distinct and consistent timing relationships to the overall us economy that, you know, a lot of industries like, you know, metalworking manufacturer, they're kind of caught in the here and now ebbs and flows where single family residential has a very distinct leading relationship to the U S economy.

(05:01): It's, it's something that we actually look at as a bellwether for where the U S economy might be headed. And then on the other side, you know, kind of the caboose of the train is non-residential construction, which is very reactive and delayed in terms of, you know, whether it's macro, economic carnage at times, or periods of growth. We see that these with those larger scale projects are very consistently towed behind that by around a year. So it's those two parts of the industry are pretty much, you know, the locomotive and the caboose. And I always think that that interplay is really interesting for construction in particular

(05:35): Right now most builders would describe the market as hair on fire. What do you describe this market as, and how did we get yeah, here? I think that that's a good way. I mean, it's, we're cooking with gas. I mean, it is on fire right now and I, it was probably refreshing for folks in the single-family space is that obviously housing was the star of the show and all the wrong ways, a decade plus ago, heading into the great recession, you know, particularly here in the United States, it was not only was it a leading sector. It was one of the primary causal factors for, you know, that slide into that recession where housing, this time around it, it was interrupted. You know, it was it was a soft buyer's market for all of what, you know, four weeks, you know, last spring, you know, we saw some, some building interruptions, but it very quickly was the fastest sector to bounce back. And then it hasn't looked back basically since the latter portion of April, basically around this time last year was when things took off again.

(06:35): And in my opinion, and looking at it, single family housing has been underbuilt I think in my opinion over the last several years, I mean, as we look at, you know, unit counts, typically in the U S I mean, we're still even with the growth of the last 12 years, we're still not even at 60% of the pre great recession peak, where we look to say a multi-family market that has had a really nice run in the last decade. And I think there's a lot of demand has been a lot of demand on the sideline sometimes by choice sometimes by inventory availability. And COVID kind of unlocked a lot of that, where all of a sudden, you know, folks no longer geographically tied to their office location. I think we're all doing this podcast from our homes here where all of a sudden the nine to five commute, the necessity for living within generally tight proximity to the office, and particularly in urban environments, which lends itself to the rental market, all of a sudden folks are now, you know, kind of have the flexibility to look to suburban markets that my generation, the millennial generation in particular has been really reluctant to Wade into and, and kind of, you know, purchase that home.

(07:49): You know, their first home where now all of a sudden suburban and rural markets are cleaning up here over the last year. And, and what developers have quickly realized and, and buyers as well is that the inventory has not existed to serve that. And so it's been a really fortuitous mix of circumstances. And, you know, I had been kind of a consistent proponent, I think, of the single family market and my discussions in the last several years where I just felt like COVID or no COVID is my generation. I don't know if aged out is the right term, but as life kind of took over household formation, family creation, having kids and everything that was eventually going to pull us towards the suburban market. So I'd been eyeing the 2020s as a general, maybe a pendulum swing back away from multi-family in favor of single family. And I feel like COVID just put that on steroids over the last year. Really.

(08:40): We've seen it in just about every facet of single family home, building remodeling. I loved what you said earlier on about your leading indicators and Dave, and I talk a lot about that when we're talking with builders, is that ability to have a good forecasting, you know, and I think it's especially important in this industry to look ahead at what's coming versus there's a lot of folks that may constantly look at reports, they're looking at stuff that's happened and it's in the past, and that that's not something that's really gonna, it's not gonna put you in a, in a position to set yourself up for the future.

(09:14): Yeah, exactly. And I think it's, you know, what people struggle with. It's like they know interest rates matter. Like they know they know what, you know, general mortgage rates are doing matters to their industry. They know what inventory levels, whether they're too high or too low, they know that all of that matters. And I think what we do at ITRs, we just quantify that we show that relationship. We can actually distill that to a leading a consistent time relationship. So, you know, mortgage rates, for example, it has an 11 month lead time to the U S single family housing starts trend. So what that means is, is when we see mortgage rates start to rise, which is what they're doing right now, I mean, they're still, it's a joke how affordable mortgages are right now. And, and the rates are still very affordable, but they're taking up and someone might look at that and say, Oh, they, you know, that, that means bad things are coming, but, and they might think that that's happening right away, but we've ran the correlations, looked at the historical cycles. And it's typically about an 11 month delay between the onset of a rising interest rate trend for that to actually start to take a little bit of a bite out of the market and take away some of that momentum. So as things stand that's, you know what we're seeing, you know, this nascent rise, that's aligning with things starting to cool off just a little bit. Once we get into early 20, 22, which is consistent with our forecast and expectations,

(10:35): Considering as hot as the market is it's probably in supply chain or restraints, you know, that we probably need a little bit of a cooling off, I would say so. Yeah.

(10:43): I don't think what we're doing and seeing is sustainable. It's going to be, we think for the rest of 21, it's still going to be a lot of good problems to have, but just obscene input, cost pressures, you know, supply chain issues, labor constraints, and, and it might be a needed breather period as we move into 22, 23 to kind of catch our breath after, you know, the, after the last 12 months and then probably the next eight or so months, you know, remaining here in 2021,

(11:10): Probably the biggest immediate question here right now that our listeners will want to hear about is, you know, we're all right in the midst of this supply chain, chaos and access to resources all around, everybody's busy, there's limited supply. We can kind of see what's led to it with closures and things like that. What are the factors that will lead to this stabilizing? What can builders expect to see over the next year with respect to this issue? Is it going to stabilize, or can we expect to be fighting for resources for the entire year? What does that look like? And what are the fundamentals behind that?

(11:50): Well, I think that the demand pressure is just so overwhelming here in 2021, that, that I think supply side is going to be playing from behind as it has been very likely through the end of this year. Obviously they're making strides there and, and, you know, we're going to see mills chasing, you know, higher softwood pricing, hardwood, pricing, everything else. And I think what was unfortunate is just demand came back so much faster for housing than anything else. And while, you know, I've talked to some folks in the hardwood industry, I mean the, their own capacity issues are still existing. And, you know, in some of these rural markets, labor, availabilities, or really big challenge right now, particularly with ongoing generous unemployment benefits, trying to get folks off the sidelines and try to address the shortage. It's just, the demand will not relent enough if at all this year to let them catch up. So we think it's 2021, we'll be looked back at kind of fondly and, you know, almost wincing at how difficult it's been to find some of these things. And I think it will be the cooling demand pressure next year, that that's finally going to let the supply side catch up.

(12:58): You mentioned the labor pool catching up. I mean, there's the immediate issue with the labor pool, but when you look at the long-term labor shortage that we see coming up, or we're hearing about how does that impact things? W what are, do you guys ever work on? How do you shift that? How do you change that? How do you prepare for that? Because that's what we feel like the builders that win the resource game, the builders that attract the right trades that attract the right project managers that build that will be the ones that come out of this, the strongest, but the reality is there are some massive labor shortages coming. What are the things that we can do to prepare for that? Or what are you guys seeing

(13:41): Given how much I look at it that something that, that breaks my heart, because the demand is there. I mean, in all the trades, I mean, the demand is there. And we know just looking at basic demographics and how demographically top heavy, you know, a lot of these trades are, you know, the aging boomer, retirement pinch has been a struggle in the last five plus years. And it's only going to get worse as the 2020s wear on it. And we just have kind of a, just a broken national narrative, I think, around how attractive these jobs, you know, when you think job security, you know, I, I always tell people, I mean, it's the trades. I mean, it's just a no brainer as we look to the 2020s, but my generation certainly didn't lean into it. I think recruitment out of gen Z is also not been particularly tremendous as far as getting young folks into these fields because it's, you know, the obsession with the four year degree and kind of what I'll call coincidence, social media experience that goes along with that, and trying to mirror that lifestyle where, you know, if you'd go from high school and then you start, you know, you become an electrician or a plumber, it's just not as sexy.

(14:47): And I guess I see, you know, some of the struggles that, but it's, it's just a heck of a recruitment challenge that as, as it's what, how it's really going to play out, it's just going to be upward wage pressure, which is obviously going to flow to the end product in terms of, you know, home construction costs. But the laws of economics are going to, to a certain extent, you know, make a difference, you know, as we see that wage pull that will create some demand for, or I guess draw some labor into these industries. But I think we could do a better job nationally of trying to not put down some of these different, I don't even know if we put them down, but we certainly don't elevate them to the extent that we do kind of that traditional four year college experience that has kind of dominated, you know, everyone's thinking, planning, everything for, for the last few decades,

(15:36): Talked about a lot, almost a stigma in the industry. You know, I mean, you've seen it, whether it's even in Hollywood, that the trade contractor kind of gets positioned almost at the bottom of the food chain, so to speak, you know, as you said, it's not sexy, not glamorous. I do see there are some things happening at a lot of the local levels. There are trade schools. You know, one of the things is I think having some of that stuff stripped from almost all of the high schools, you know, whether it's wood shop or whatever those things are starting to come back, we have to collectively, as an industry, we have to find a way to, to get that message out there, that there are paths available. You know, I think that's the biggest thing. I think as soon as some of these folks get in there, you get an enough numbers of young people doing it, making some good wages, that stuff will probably start to make the, the social media narrative a bit and we'll change things. So I do agree, I guess, one of the other things that we see coming is more automation in the industry. Is that something that you look at when we're looking five to 10 years ahead of the challenges that we're going to face? Obviously we have this labor one, we have materials, but do you see any massive shifts in the way homes are produced impacting the industry?

(16:45): We've looked at it. I remember I don't want to misquote the source, but I remember there was a study done. I can't remember the source, but I remember that that construction was basically one of the most difficult industries to penetrate from an automation perspective. I mean, you're dealing with the elements, you know, you're dealing with these individual job sites where it doesn't, you know, lend itself to that controlled production environment. Like, you know, these massive manufacturing facilities where it's, you know, you kind of make it all there. So obviously, you know, the modular trends, I think we've certainly been hearing more about as of late, but the inability to find labor's naturally gonna pave the way for that. I mean, you know, obviously we're seeing robotics and automation penetrating parts of the economy that, you know, would have been surreal, you know, to believe in 20 years ago. And it's, you know, that vacuum of available labor, but the demand for it, innovation generally wins out and creates creative solutions, whether it's a way to augment the productivity of the human labor resources that we have there, or to perhaps eliminate their need altogether. But I do recall that, you know, construction itself just doesn't lend itself in the way that, you know, wholesale distribution or manufacturing does to some of this automation penetrates

(18:02): That's especially true when you get into the custom building side of things, because you've got clients with so many choices and I mean, it's what custom is. It's getting exactly what you want. So the further away you move from the production model and the more you move towards customization, the harder it is to have this mass mass production this way. But what sort of advice do you have or what sort of opportunity do you see out there for the, for the forward thinkers who are looking to move the needle want to be ahead of these things want to be ahead of their competition, want to win that the battle for resources? What advice do you have for them? Or what things do you see coming for them counter? I just want to piggyback a little bit on what Dave said, going back to, I listened to a webinar ITR webinar. I want to say it was several weeks ago, but one of the lines you guys talked about really resonated with me, cause you were talking about the, you're talking about hiring in the labor pool, probably being one of the biggest challenges for almost every industry. And the one line you guys said was the focus should go towards hiring the golden retriever puppy versus trying to find the purple unicorn. And it really resonated with me. And maybe that's something you could expand upon a little bit. Yeah, absolutely.

(19:17): So anecdote, one of my colleagues, her client shared that with her and I thought it was great. It was, you know, they, they feel like they've spent so much time in the last few years waiting for that purple unicorn. And for our listeners that the client described the purple unicorn as that ready to go trained highly motivated employee that you just plug and play and it keeps organization moving. But it's about as rare these days is a purple unicorn and they've, you know, realize that maybe reorienting their expectations in how they're deploying their resources together, more golden retriever puppies, which are, you know, they're excited, they're untrained, you know, they're, they're kind of pliable assets, but, but I, I I've talked with a lot of my clients about that. That's just, you can't wait for the labor market to bring it to you cause it's just not going to happen.

(20:07): You have to completely rethink and say, yes, this untrained individual, it's going to take more resources. It's going to take more time to onboard them and get them, you know, where I need to be or where they need to be to, you know, serve it and productively add to the organization. But if you start that battle now and try to build out that infrastructure for your own recruitment, your own training and kind of get, I don't know if self-sustaining is an appropriate way to describe it, but, but kind of just a perpetual toll there in your own organization. If you start that now, as opposed to, you know, waiting three to five years till it gets critical where you're actually losing business, you're losing opportunities. You're, you're not which I'm sure is actually already happening for a lot of folks, labor issues. But I think, I don't want to say resigning yourself to that because that kind of makes it sound like a bad thing, but just, you know, just being proactive in understanding the labor market dynamics that just are not bending in favor of the industry and will not in, in the coming decade.

(21:04): And unless we see some sort of major sea shift in terms of recruitment into the industry in general, which I'm not prepared to bet on at this point in time that you know, saying, okay, we need to think about this differently and understand that, that this may be more of a kind of self undertaking at the organizational level at the local level, you know, partnering with, you know, whether it's local schools or different channels, Dave, to your point. I think the ability to attract and retain labor is going to be a massive competitive advantage for businesses in the 2020s. You know, it was kind of just like a peripheral headache and basically the 2010 through 2020 period. But I think it goes critical and really starts to separate the winners and losers in the coming decade, because it's going to get to the point where it's maybe not grind organizations to a halt, but really limit their ability to meet market demand, which we think is going to be there. You know, we don't see some housing crisis, 2.0 in the offing at this point in time. I mean, we're still, like I said, at about 59.7% of our annual build rate in the us compared to where we were in March Oh six at the pre-recession peak. So, so we're not there like people say the bubble word and you know, it's kind of, it's certainly frothy market conditions right now. I guess I would call it. But I think the demand is justifying what we're seeing to this point in the market.

(22:27): A quick reminder, that the best way to get the most out of this podcast is to engage with the builder nuggets community, visit our website@buildernuggets.com and follow along on Facebook and Instagram.

(22:40): Well, and it sounds like now is the time to begin preparing for this. I mean, it's a great economy. You've got the ability to make more investments into people. And if you structure your business correctly, we're Dwayne and I are going to be talking about that some more soon in an upcoming episode, but treating your people as an investment, working on them. Now I love the idea of the golden retriever puppies. Yes, you want to turn them into purple unicorns. We just did an episode on unicorn project managers. So we understand it. We're on the exact same page with you, but this is going to be a fundamental shift away from a commodity based industry where staff are often treated like commodities trades are treated like commodities. We can't do that anymore. We've got to motivate people. We've got to have them inspired to go on the mission with us. We've got to make it cool and sexy. And the right business owners will be able to do that. So we're going to spend a lot, a lot of time over the coming years, figuring out how to attract, how to inspire, how to work with these next generations, how to trade or how to train, how to, how to set expectations with clients and probably buying a lot

(23:46): Of carpet cleaner and stain remover for all these golden retriever puppies. That's exactly what I'm thinking, because I think everybody knows, you know, it, it means that there's going to have to be a tremendous shift and focus towards training, you know, because you're going to have to bring in these golden retriever puppies and they're gonna need a lot of time going to have to train them, bring them up to speed because we all know what happens if you get that new puppy and they don't spend any time with it, they end up eating your shoes and on the floor, frankly.

(24:13): Exactly. Yeah, I would, I would just echo that a hundred percent. Like you're, you know, where your impending retirements are and where the impending problems are and it's, you can't just bring in the golden retriever puppy, like the day that person's leaving the organization, be like, yeah, okay. This works, you know, swap out. It does take some hand holding and you know, maybe that's not what we're used to, but I think it's just accepting realities on the ground and trying to make lemonade really

(24:37): Talk about probably won't be a choice. Yeah. I have to, to compete. You won't have a choice, but think of how rewarding that is, who doesn't love golden retriever puppies, it will be amazing if you have this mindset and you're into empowering other people, the word you used earlier, Connor was elevating. We use that word a lot as well. If you figure out how to train, how to elevate, how to put the systems and processes and how to create autonomy and purpose and all those sorts of things for this section of the economy or of the of the industry, this labor pool, you are going to win, you're absolutely going to going to crush it. So yeah, I encourage everybody to reach out to us and share with us what they are doing to attract train what the best practices are, because this is, this is vital. As you see us going forward the next five to 10 years, what other challenges might be out there? Maybe that, that aren't apparent, right? You know, today, because everybody right now, again, the hair on fire moment, everybody's overwhelmed. They're thinking supply chain supply chain is what other things might be creeping in over the next few years that builders remodelers need to be thinking about what's lurking in the shadows. So

(25:55): If I wanted to give somebody, you know, something that not necessarily that's keeping me up at night, but, but something that's in the back of my head, I guess, would be from a market condition standpoint, interest rates, we're of the opinion that ITR, that we're going to be on a general climb here as the 2020s were on, you know, if the current run that we're on, you know, if the word bubble or I guess the ensuing bubble pop type market outcome, where to come, I guess my concern would reside on. If we see a little bit of an interest rate website here where obviously just re I mean, we had 30 year fixed mortgage averaging below 3% for much of the second half of last year, which is just a joke. I mean, it's just crazy affordable. And obviously we've seen the buyer response to that now that we're seeing mortgage rates creep up, we don't think it will be game breaking, but you know, my, my generation, you know, we're kind of short term memory creatures where, you know, and, and we certainly don't have the perspective of the seventies or eighties.

(26:49): So, so we think of four, 4% 30 or fixed. So, you know, we think that that's like normal or like, Oh, 3%. Yeah. I guess, you know, this is nice where anyone over the age of 40, particularly, especially 50, I mean, my parents first homes, you know, eight, 9% mortgage rates. I mean, just things that are unfathomable for my generation. So for my generation, you know, I, I, I sound like a self-important millennial keep talking about millennials, but, but we are the next, we're the needle mover from a demand perspective, it's baby boomers are going to be into, you know, kind of their Rez portfolio consolidation, trade down, that's going to start happening or the 2020s, which is okay because millennials by headcount are actually a little bit bigger than the baby boomer generation. So we're there, I think to sufficiently kind of offset some of that aging demographies kind of draw down.

(27:39): But what worries me is, you know, we see mortgage rates go up, meaningfully, obviously we're seeing inflation levels. We're seeing that the bond market is definitely pricing in some higher inflation expectations and some higher growth expectations, but does my generation get sticker shock if we just go back to, you know, five or five and a quarter? I mean, that was actually, you know, part of the reason, you know, single family starts actually contracted in 2019, and that was actually on a chart, you know, just a, almost a perfect negative response to mortgage rates. When we saw interest rates, you know, ten-year treasury yields above 3%, 30 year fixed mortgages in the high fours, low fives in 2018, that kind of laid the foundation for some market softening in 2019 that the market was really starting to heat up early last year before COVID tripped it up for four weeks and then it was back off to the races.

(28:28): So I'm keeping a pretty close eye, I think on mortgage rates, because for whatever reason, the single unit housing starts trend and growth rates have been remarkably responsive to interest rate moves over the last decade, more so and more consistently than we saw in the prior decade. It's just, the relationship has really tightened up and they've responded very enthusiastically this year. So as we see those start to, to flow a little bit higher here, moving forward, we don't think it's going to be particularly catastrophic, but if we, you know, just keep getting more stimulus, more inflation pressures, the bond market starts to price that in. And all of a sudden that carries, you know, five, you know, God forbid a 6% mortgage rate, you know, that could jolt the market a little bit, and it could be more of a generate a bit of a speed bump here in the 2020s for what I think otherwise will be a pretty strong decade for the, the single unit single family development market and remodeling market here.

(29:25): As we move forward over the next several years, this may ring true for, you know, single family you know, for the custom home building. But I know particularly with some of my non-residential construction clients, what I've tried have been worked with that cause that market's actually softening right now in 2021. Obviously the office market is, you know, in some other commercial verticals are struggling right now and still responding to what we saw last year. But, you know, they said, you know, as I've talked to them about their experience, you know, one of the worst things I did is you just start chasing volume and projects and you just, you want to fill your workflow. So you take the bad fits that lead to bad execution, cost overruns. And all of a sudden their, their entire board is filled up with things that they took at, you know, as the bidding environment, just, you know, no margin, just bad projects.

(30:14): So I would, I would talk to folks about is we think that the demand will be there. Like we think it will be know slower growth, certainly in 22, 23, but you know, confidence to pick the higher margin jobs, the better fit jobs that really fit what you do and try to not be so concerned that like, well, you know, I'm, I'm reluctant to let anything pass because I want to make sure that, you know, just in case, you know, there is that, you know, downturn in the offing, we, we don't think that that's a major concern for the housing market in the next three years,

(30:41): Significant advice, right there be put yourself in a position to pick the work that aligns with the type of business that you want to be in and run rather than taking the work because you have to, or to fill something up, select your work with intention, select your people with intention. Great advice. Yeah, Yeah. Yep. And of something I can't help, but think of is that as, I mean, it seems right

(31:07): Evitable that interest rates are going to rise. It seems inevitable. We're going to see some inflation if I just start to add that up and I'm certainly not an economist, but I would think that the challenge might also be for builders remodelers, especially in the custom market to start thinking about, there may be some challenges to start being more creative around, are these houses maybe going to get a little bit smaller or, you know, ways to keep the costs down because some of these other costs, interest rates, inflation are going up. Does that make sense? Is that a,

(31:36): I think it does. I, I just feel like it's gotta be a really challenging landscape for builders right now, given the state of material costs. I mean, just your, you know, some of these classic, you know, obviously a big home kind of varies by geography around the country, but obviously just the more materials, you know, they don't try to creatively sell that, that slightly smaller home just to keep the price point.

(31:58): I'm trying to figure out what the millennials are gonna want. I guess that's the question. Yeah. So I, I think we could see that I haven't looked at the trends recently. I don't, you two may have some insights on that. Have we seen a move and kind of median square footage coming back down? Know we have that data somewhere, but yeah, the challenge

(32:17): We, I, I see in some of the markets we work in, you know, what happens is of course, of course builders are going to try to get it to much, as much as they can, you know, out of lots, lots become more and more difficult to find they're pricier. So when you do get a lot, you want to try to put as much house on it as you possibly can. But I do see, as I said, a lot of times from the consumer side, that demand for maybe a more well appointed house, but smaller, they want things well done. They just not sure that they need as much as maybe what has been built over the last decade or so. Anyway, that's just something I've seen. One thing that I was wondering

(32:51): Before this latest demand, boom, and it clearly hasn't been prohibitive, but you know, that that land availability factor, I think is interesting. I've always wondered if there's a breaking point there, like where we just run out of lots and lots space relative to, you know, where the population centers are, where the jobs are, which is where I think COVID kind of has been an advantage where it's kind of widened the geographic net, where buyers are willing to look, you know, cause I'm just North of the Boston market and kind of anything inside that four 95 loop around greater Boston. I mean just the price points are so obscene because everyone wants to try to minimize that commute, not absolutely hellish East coast traffic where we're COVID is kind of, it's been a creative solution for a lot of folks to, to open a door that I don't think a lot of people ever thought was going to open as long as they, you know, had to be downtown five days a week.

(33:48): So, so I think that that's been such a blessing for the market in the last year. And we'll see, you know, everyone new normal is kind of like one of those nauseated terms. It's like, if I hear it one more time, I'm going to like lose my mind. But I am curious whatever, what paradigm we're going to settle into two years from now, you know, is it, will this truly stay as far as some of these hybrid remote working models? Cause I guess what I'm fearful for, I don't know if fearful is the right word, but what if two years from now employers are like, yeah, you know what, the hybrid remote work, you know, we lost too much culture. You know, we had too much fraying at the ends. Couldn't keep everyone rowing, you know, rowing the boat in the same direction at the same time. So they all of a sudden unwind all this. And then all of a sudden, all these home buyers from this year and last year, all of a sudden stuck with something where now they have to trade out and go back to the running lifestyle just to avoid a four-hour commute that they didn't think was ever coming back. So, so I guess we could put that in the tickler file under potential downside risk, but I don't necessarily think it's going to play out like that.

(34:50): And then this same time period, you know, over the next several years, what kind of opportunities could be out there for builders?

(34:56): Well, it's, you know, we think that that the 2020s, we were locked in on this pre-code we thought that the 2020s were going to be a prosperous period in general. I think that the millennial emergence is the primary demand drivers in all facets of life, whether it's consumer brands, catering to them, custom builders, catering to them, you know, our incomes and, you know, cause the oldest millennial, it seems hard to believe, but they're actually scraping into their early forties. Now we feel that the, the 2020s are going to be the roaring twenties. I'm hesitant to open this door, but I think it's worth your listeners knowing the ITR does see an end to the party at the end of this decade.

(35:32): No, it was going to mention the book prosperity in the age of that. I read again, after that first summit that I attended back in 2015, but yeah, please let us know that. And I don't want to end on a particularly doom and gloom note, but at the same point, your guys, the whole point of what you guys are trying to say is by staying ahead by forecasting, you can prepare yourself for whatever's coming.

(35:56): Yeah. We think that the 2020s, this is going to be a make hay while the sun is shining decade because we think a big cloud comes in the 2030. So for those of you, if you want to read on it, there's a book prosperity in the age of decline, authored by Brian and Alan. Bolio our president and CEO here at ITR economics. Basically the long story short is at the end of this decade. We think that the good times, and particularly the unsustainable debt trajectory of the United States, we go off the tracks essentially. And part of that is going to be rising inflation. Part of that is going to be rising interest rates. Part of that is going to be demographic challenges facing the United States with baby boomer, retirements, just even ignoring the labor market implications. That's going to have the next decade. It's more of a accounting issue for the U S government where outlays for Medicare, Medicaid, social security are going to become very quickly untenable.

(36:53): You know, they're basically already there, but the fiscal situation for the U S government, you know, is we think is going to leave them with no other choice, but to rapidly increase taxes, to make sure that their incoming revenues sufficient to cover their own costs at a time where interest rates will be high. And we think that that is going to yield, not just a recession, but potentially a second great depression, basically a hundred years after the 1930s, great depression starting in 2030 and characterizing much of that decade as we reorient ourselves as a country and have to make some hard decisions at the government level that have been expertly, unfortunately kicked down the can consistently for the last several decades. We think that the cliff at the end of the decade

(37:38): In your research, and when you look around, you know, we talk about economies being global economies. Now what countries or what areas of the world are not going to be subject to the same risks or to this are not kicking the can do you guys look around and see this region? These countries are much more well-prepared for these phenomenon. And what are some of the habits that you see there that we can start to emulate here?

(38:08): Well, David start with you North of the border. We think that Canada, the Canada just keeps their fiscal house in order in a way that is quite MDs to the trend lines. So we see here in the United States, it's just not nearly as horrific of a debt trajectory. So we're actually pretty bullish on Canada. Brian and Alan have said that the rub there is obviously Canada is quite reliant on us demand. And, and so obviously there's a very economic linkage there. So there is going to be some spill over, but we just think from a country level viability and kind of fiscal house in order we think that Canada is in a very good position. Interestingly, Australia is another locale that, that Brian and Alan think is also in a position to succeed. It's tough, you know, the United States accounts for largest economy in the world.

(39:01): And so that can't go bust without sending some major ripples around the entire globe. And the other unfortunate aspect is all of Western Europe is in the same boat. Demographically actually worse so than the United States because they did not get the millennial boom that the United States have. I guess I have the privilege of being part of a, a viable tax base. That's going to get soaked here at the, the end of the decade as these problems come up, but Europe doesn't have that Japan doesn't have that. China doesn't have that. And they all have extraordinarily top heavy demographies, extraordinarily high debt levels. You know, Japan's debt to GDP ratio North of 200%. I believe majored their top-line population actually peaked in 2010 and has been declining for 11 straight years. You know, where the United States through immigration and generally healthy, you know, fertility, you know, child bearing levels, you know, we've actually so an edging up slightly, but that's not the case everywhere. So we think, unfortunately globally, you know, when you look at Japan, China, the United States and all of Western Europe, that's about 70% of the global economy. That's going to be facing the same issues at the same time. So we kind of see limited spots for, I guess, shelter. But, but Canada and Australia, we've, we feel are pretty good spots from Brian Allen's research.

(40:22): Yeah. I've, I've read the book. I recommended anybody have the opportunity to read the book and it's, that's exactly why it's titled that way. There's there can still be prosperity in that age of decline. Connors has been some good stuff. The looking forward part, I think is the biggest part for me that it might take away and there's opportunities that are coming up. You're certainly going to be some challenges in the 2020s, but sounds like we still do have some runway here. We should position our businesses to, as you said, make hay while the SunShot. Absolutely.

(40:51): Yeah. I think it was a pleasure to be here. You know, this was a ton of fun. And I think closing thoughts for me is the hair on fire. We think that that cools a bit in 22, 23, but, but stopping short of saying, Oh, we have to deal for summer session. I think you're going to get a much needed breather in 22, 23, but it's not the rug being pulled out from underneath you. So it's kind of trying to keep up this year and wait for some of the supply side issues to start to resolve themselves next year. Life will get a little easier and the demand should still be there. And I think we have a nice three-year runway to look forward to and take advantage of

(41:24): Dave. Any other questions for Connor? No, some really important stuff that you're serving up here. It'd be fun to make this an annual thing or a, you know, a semi-annual to, To, to keep our audience up to date with where does Connor think things are now? What's the Connor index looking like pretty, pretty cool. So thanks man. Appreciate it. Yeah. I'd love that. A little annual Connor state of the union I'll come on. I can, I can own what I got wrong. And then, then maybe I can, you know what I got right. A few things. Well, you got to hype, you got to hype. One of the things David likes to always ask folks is, you know, what are you excited about? I would say ITR, we're just excited for not having to deal with forecasting and a global pandemic with the government making unprecedented unprecedented shutdown orders just at utterly unpredictable, unprecedented times and magnitudes that it was, sir, it's been a challenging year. I think we we've done very good with it. We've been grading some of our accuracy for some of our initial forecast changes at this time last year when everything was still in free fall.

(42:30): And we did, I think better than quite frankly than we expected. I just had a client this morning where I went through one of their forecasts that we would put it in place April of last year. And it was dead on for four straight quarters within 1%, which is cool. So I think we're looking forward to things, resolving themselves just more what a normal market dynamics and not gangs on the Hills. Just kind of making decisions that everyone else has to deal with. The fallout of. I think that we'd like to just get back to the economy, do what it does and, and move into a nice normal business cycle here. And hopefully just a delightfully boring 20, 21, 2022 after last year, the crystal ball year wouldn't be bad. No, not at all. The the crystal balls turned back into crystal balls instead of snow Globes w what they look probably right now, anybody listening out there wants to reach out to you, connect with you guys, how do they, how do they do that?

(43:24): You know, best way to do it. You know, if you'd go to our website, ITR economics.com, I think we have a lot of, you know, myself and other speakers. We do blog posts on there. So there's a number of ways where you can engage with us, you know, follow our thoughts without having to pay anything. I mean, our, we have miniature trends talks, there's basically a mini podcasts, like five, seven minutes where myself other speakers try to take on topical items. You know, our friends in the, in the mainstream media, that economic reporting is not a particular strong suit of theirs. Then it's, sometimes some of the headlines are almost, they seem criminal to me, the, the spin applied. So we try to just give you the data. This is what's happening. This is what matters for your business. So it's a great way to, to catch up with us there. And as you know Dwayne there's, you know, we have some other resources, our trends report some of our webinars where we take deep dives on everything, but construction in particular and some of our, our webinar offerings. And then our trends report has forecast for the single family market three years out multi-family non-residential markets. So I think there's a way to, to what the appetite there, certainly. So I tear economics.com. That's great.

(44:25): Thanks again for your time. Appreciate it. Very welcome.

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