Unaffordable Housing (EP.225)

Episode Summary

Executive Summary: The episode covers supply-chain disruptions, inflation dynamics, housing affordability, asset-market pullbacks, and the rise/fall of pandemic winners like Zoom, Zillow, Peloton, and Teladoc. The hosts argue that many narratives are exaggerated, but acknowledge real friction in housing, lending, and logistics, while debating whether today’s low-rate world justifies higher equity allocations and leverage.

Main Topics: Supply-chain disruptions and holiday shortages (Priority: 5/5): The hosts discuss mainstream concern over shipping bottlenecks, toy shortages, and whether retailers and families are front-running the problem. They treat the issue as real but over-narrated, with anecdotes from ports, parents, and retailers suggesting lingering congestion into year-end and beyond. Inflation versus deflation (Priority: 5/5): They argue inflation is the lesser evil compared with deflation and note that broad price increases may reflect economic expansion rather than runaway overheating. They also discuss alternative inflation measures and the Fed’s shifting language around price pressures. Housing affordability, iBuying, and mortgage friction (Priority: 5/5): A major segment challenges the idea that Zillow and institutional buyers are driving the housing boom, while acknowledging that affordability is deteriorating for many buyers. The hosts highlight structural mortgage-access problems for freelancers and the pain of refinancing in a highly regulated lending environment. Market corrections and spoiled investors (Priority: 4/5): The episode frames recent declines in stocks and bonds as relatively mild compared with prior cycles, arguing investors have become accustomed to uninterrupted gains. They discuss the S&P 500 correction, Nasdaq weakness, and the fragility of consensus narratives. Endowments, venture capital, and startup abundance (Priority: 4/5): They examine eye-popping endowment returns and attribute much of the performance to venture exposure during a period of sharply rising startup valuations. They also praise startup infrastructure tools that make fundraising and operations easier, suggesting founders now have more runway than in past cycles. Behavioral narratives in markets and policy (Priority: 4/5): The hosts critique simplistic blame narratives, such as blaming Zillow for housing inflation or assuming insider Fed trades were always lucrative. They emphasize that headlines can mislead and that anecdotes spread quickly online. Pandemic winners and cultural shifts (Priority: 3/5): They revisit major pandemic-era winners and losers, noting large drawdowns in Zoom, Peloton, Zillow, and Teladoc. They also discuss cultural and media changes since the 2000s, arguing social media decentralized taste and influence.

Key Arguments: Supply-chain issues are real, but the problem is often oversimplified; multiple bottlenecks across ports, trucks, rail, and labor are interacting. Inflation is preferable to deflation because falling prices can create a damaging delay in spending and a negative feedback loop. Housing prices are high, but affordability depends on both prices and rates; low mortgage rates offset some of the increase, though not enough for everyone. Zillow and other iBuyers are too small to be the main driver of national housing inflation and are currently struggling as a business model. Recent endowment gains are partly the result of valuation marks in venture capital during a bull market rather than pure alpha. The market has become too used to rising assets, so a modest correction feels unusually painful. Many public narratives gain traction because they are emotionally satisfying, not because they are empirically accurate. Today’s low-rate environment supports higher equity allocations and may make older allocation heuristics less relevant. Freelancers and self-employed borrowers face structural obstacles in mortgage underwriting, revealing a real financing gap. Selective leverage inside long-term investment vehicles could make sense in a low-rate world, though it raises fiduciary concerns.

Data Points: Masterworks Series A valuation: $1+ billion - Opening ad read noting the company’s new valuation after a $110 million Series A Masterworks Series A size: $110 million - Ad read about art-investing platform financing Masterworks planned art purchases: $400 million in 2021; close to $1 billion in 2022 - Ad read describing expected buying activity Contemporary art appreciation: 14% annually from 1995 to 2020 - Ad read comparing art returns with other assets Port of Los Angeles Christmas goods timing: Arriving as early as June instead of late August/early September - Supply-chain discussion on holiday inventory timing Mattel guidance: 12% to 14% sales increase - Toy maker expectations for holiday season Stock market correction: First 5% correction in over a year - Market discussion early in episode Nasdaq 100 drawdown: Near a 10% correction - Context for weakness in growth stocks Equities as household net worth (age 69+): 31% in 2021 vs 11% in 1990 - Chart on household stock exposure by age Zillow homes bought/sold: 17,000 bought; 13,700 sold - Discussion of Zillow iBuying activity from Apr 2018 through Q2 2021 U.S. single-family homes: 86 million - Scale comparison for Zillow activity U.S. homes sold in 2020: 6.5 million - Housing market scale context Homes bought by Zillow in 2020: 4,000 - Used to show iBuying is a tiny fraction of the market Zillow cumulative losses: $667 million - Business performance of iBuying model Median household housing burden: 32% of income needed for mortgage payments - Wall Street Journal affordability data Households spending over half income on housing: 17.6 million - Affordability problem in the U.S. Freelance workforce size: 67 million - Mortgage access issue for self-employed workers Early-stage U.S. startup valuation: $96 million average in first half of 2021 - Startup valuation boom affecting endowment returns Early-stage valuation increase: Up over 50% from $62 million - Comparative startup valuation data University of Minnesota endowment return: 49.2% - Endowment performance cited in Wall Street Journal Duke endowment return: 65% - Endowment performance cited in Wall Street Journal Washington University in St. Louis endowment return: 65% - Endowment performance cited in Wall Street Journal University of Virginia endowment return: 49% - Endowment performance cited in Wall Street Journal Peloton connected subscribers: More than 1 million - Pandemic-fueled growth in connected fitness Peloton workouts per user per month: 19.9 vs 24.7 last year - Signs of usage decline as pandemic behavior normalizes Zoom share price decline: Down from $590 to $256, about 57% - Pandemic winner retracement Zillow share price decline: Down 57% from highs - Pandemic winner retracement Peloton share price decline: Down 51% from all-time highs - Pandemic winner retracement Teladoc share price decline: Down 59% from highs - Pandemic winner retracement Buy Now, Pay Later delinquency: About one-third of U.S. users fell behind on at least one payment - Survey discussed in the episode BNPL credit score impact: 72% of delinquents saw score declines - Survey discussed in the episode

Pivotal Quotes: "Christmas will happen on December 25th." — Port of Los Angeles executive director (quoted by hosts): Used to frame holiday supply-chain anxiety with humor and skepticism "What does price mean when there’s no supply?" — Doomberg (quoted by hosts): Discussion of Rolex pricing and empty shelves as a supply-constrained market metaphor "The juxtaposition of gorgeous branding and store design with empty display cases and bored salespeople is the perfect metaphor for our time." — Doomberg (quoted by hosts): Used to illustrate scarcity, status goods, and distorted pricing signals

Implications: Listeners should expect more volatility in goods availability, continued debates over inflation and affordability, and more skepticism toward viral market narratives. The episode suggests low rates and abundant capital are reshaping investing, lending, and startup formation.