Real estate in context: Low inventories, tight labor supply and the impact on recovery

April 10, 2012

In Arizona real estate is often described as driving the economy, but is that true? In the first of a series of roundtable discussions focussed on real estate, economist Dennis Hoffman and real estate experts Mark Stapp and Michael Orr talk about real estate in context with the overall economy. The current real estate environment is one of scarcity -- the supply of homes to purchase is extremely tight. In the past builders could have fielded crews of construction workers to respond quickly to demand, the experts note, but policy changes mean that inexpensive labor will be in short supply as well. Will this retard new construction? And if desirable housing continues to be a scarce commodity, how will that affect a recovery in Phoenix?

Michael Orr's March 2012 report


KnowWPCarey: Welcome to the Real Estate Roundtable. Today, we’re talking with Economist Dennis Hoffman, director of the Seidman Research Institute here at the W. P. Carey School of Business; also, Michael Orr, director of the Center for Real Estate Theory and Practice, and Mark Stapp, director of the Real Estate Development Program here at the W. P. Carey School. Good afternoon.

Mark Stapp: Good afternoon.

Michael Orr: Hello.

Dennis Hoffman: Great to be here, Liz.

KnowWPCarey: Mark, we have a lot of expertise sitting around this table. We have deep expertise in the Phoenix market, and we also have one of the most quoted regional economists in our presence. Why is it important for us to take a step back and look at how real estate fits into the big picture of the economy?

Mark Stapp: Real estate is a symptomatic asset of the economy, and we view it, unfortunately, in terms of investment, but it’s really a community capital asset that we depend on. If there’s no need or want from a community for the real estate, then the real estate has no value, and so I think it’s important when we talk about the “real estate market,” that we keep in mind the fact that this is all about wants and needs of a community, and those wants and needs are predominantly economic, and not necessarily investment oriented.

KnowWPCarey: Dennis, from your perspective as an economist, what is the role of real estate in the economy? Often people around here will say that the Arizona economy is driven by real estate. Is that an accurate statement, or is it too simple, or is it misleading? 

Dennis Hoffman: Well, without making this a lecture in regional economics or making it overly technical, I would say that drivers, if you would, or fundamental determinants of an economy, are those kinds of things that tend to add to the economic prosperity over time. Regional economists would point to an economy’s base industries. By base industries, we mean areas where production takes place locally or regionally.

The result of that production is exports. Products move out to other states, other countries, and what comes in return is income or dollars, and I think we can overdo this point. China is a good example of, I think, of taking this export-based economy and overdoing it to the detriment of their domestic economy, but it’s a basic fundamental point in economics.

Therefore, where does real estate sit? Mark really hit it on the head. It’s a symptom of the economy. The health of the economy’s base industries -- and in our case, that’d be predominantly aerospace/defense, electronic manufacturing, and to some degree, tourism – [determine the health of the economy]. To some degree, our people magnetism can be interpreted as basic. But real estate is really much more a symptom of the health of the overall economy.

The confusion I think that people have, very reasonably and very honestly, is that the fluctuations in real estate in the Arizona economy have been very, very important in determining our cycles and the cyclical behavior of our economy, but in terms of long-run drivers, it’s really our base industries that drive the economy. I cringe a bit when I hear the claim that real estate is a key driver of the economy. Important? Absolutely. [Real estate is] associated with things like tax revenues and the health of our state’s fiscal situation is absolutely important, but [real estate is] not technically a driver or a determinant of long-run prosperity.

The supply issue

KnowWPCarey: Mike, you’ve begun to issue monthly reports on the real estate market. Welcome to the team!

Michael Orr: Thank you.

KnowWPCarey: In your last report, you described our market, the Phoenix market, as recovering; I think you actually [described it as a] “swift recovery,” but that it’s out of balance. Could you summarize what you mean there?

Michael Orr: Well, we’ve had a period for several years where we’ve been out of balance, where we had too many homes available -- the famous glut of foreclosures. In fact, that really goes all the way back to 2006, almost, but now we’ve reached the point where those foreclosures are slowing down and we have the opposite problem. We’ve got more buyers than we have sellers, and so everyone was expecting us to go back to a sort of normal at some point, but it’s almost like we switched overnight from an oversupply to an undersupply situation, and both of those put a lot of stress on anybody who’s in the business.

Although I would agree that real estate is not really the driver of the economy, it’s on everybody’s mind all the time in Arizona. We seem to be more real estate focused than the average state. We also have a more volatile market than most other states, so it’s a great topic of conversation and, at the moment, we’re approaching yet another extreme in the market, where every day, we have fewer homes available and more people turning up wanting to buy them. I guess that’s a better problem to have than the opposite, because when we have the opposite, prices come down, and that hurts the people who are actually sitting in homes with a loan, because they end up underwater, and we all know the consequences of that.

KnowWPCarey: Sure.

Michael Orr: The fact that we’ve got an undersupply tends to drive prices upwards. That is happening right now, particularly in the areas where prices were driven down the most, so it’s the most depressed areas that are recovering the most. That’s good news, but it’s still, as I say, stressful for people who are moving to the area and want to buy or people who want to upgrade, because it’s getting extremely difficult for them to find a home at the price they wanted to pay.

KnowWPCarey: Investors are still significant players in this market, aren’t they? What’s the end result of that …

Michael Orr: Investors have always been very active, ever since I moved to Arizona, which was ten years ago now. They were active then; they’re active now. I guess a volatile market means there’s plenty of opportunity for investment. The difference, I think, in the last few years is that investors have been playing more of a buy and hold strategy, instead of a fix and flip strategy.

Back in the first part of the last decade, you could do that, but you had negative cash flow, and people just put up with the negative cash flow, because they believed that they would win in the end through appreciation and all the tax benefits of owning real estate, which are quite important. Since 2008, really, you’ve been able to cash flow your rentals as well, so you make money as a landlord and then, hopefully, if it appreciates too at some point, you make money on reselling the capital asset.

Purely from an investment point of view, the last three years have been a great time to be a landlord. This raises the question which we’ve been discussing for a while now, is what happens when it no longer is a great time to be a landlord, if the price of new homes gets to the point where you can’t cash flow anymore, which was like the good old days? Do the present investors decide that buy and hold is no longer the policy, and they need to sell those homes and get them back onto the market?

That was brought up by an article in The Republic just a couple of days ago, saying, “Well, will there be a flood of these investor homes back onto the market, sending us back into an oversupply situation?” There seems to be a huge range of opinions on that. Mine is that it’s very unlikely to create a bubble situation, because those homes are currently occupied, so if they came onto the market, you would have one extra house available, but you’d also have one extra family who needs to live somewhere, so it has a net zero effect on the supply and demand balance.

It’s quite unlike the speculation we had back in 2005, where investors were snapping up everything, not to put somebody in the house, but just to sell it to somebody else, and we had far more homes than we had families that wanted to live in them.

Investors and communities

Mark Stapp: Yeah, one of the things that concerns me about what has been going on is, we’ve got investors investing in the community, not because they want to be vested in the community, but because they see these as fungible assets with cash flow.

Michael Orr: Yes.

Mark Stapp: A long term commitment to the health of the overall community is not necessarily embedded in their decision making, and that, from the long-term perspective, does concern me, that we’ve got a different ownership mentality. I’m not really sure what the full consequences of that are, but [consider] the new homebuilder marketplace, assuming that this market continues to tighten up. Those homebuilders are sitting on a huge amount of cash -- the major homebuilders in this country hoarded cash, changed their business model, and they are poised to be able to do things.

If you tweak the availability of capital through lenders just enough, and these guys have enough money, all of those rental homes become physically, socially obsolete assets. If you make available something that’s newer, more contemporary and equally available, what happens? What happens to those communities that all of a sudden start losing population?

I don’t know what happens with migration within the metropolitan area, but does it begin to change some of these patterns? It’s as much a curiosity as anything for me right now.

Michael Orr: Yeah, and I think there are several stages. When a community which is really hard-hit by foreclosures first gets hit, it’s devastation. People are thrown out of the house and it’s empty, and the inventory piles up. In 2007 and ’08, we were seeing, particularly in areas of West Phoenix … I was talking to friends saying, “Well, maybe we just have to bulldoze the whole place and start again,” because these homes aren’t attractive, they’re not being bought up, and even though the prices have fallen by 80 percent in some cases they are still not being bought up.

What happened is the investors timing their move in to when it’s actually the cheapest. They move in and actually fix up those homes so that now people do want to live there. They’re not expensive. They’re not the most desirable, but they are affordable, so they get to the first stage of recovery – it’s mainly the investors carrying the weight there, fixing and flipping.

If the property stays investor-owned, as you said, Mark, they’re not as committed to that community. They’re just taking a financial position, and if we don’t get owner occupants moving in and actually buying those homes, eventually it stagnates. The investors can only take you so far. You have to get the sense of community and sense of ownership to get to the next stage.

Mark Stapp: The other thing I have thought about is: so we’ve got an existing asset base here in our housing, okay?

Michael Orr: Right.

Mark Stapp: Because we haven’t added much, it has aged in place, so we’ve got six, seven years of aged assets now, with nothing really new being added to the market, and probably not a lot new added for the next couple of years, so it continues to age in place.

Michael Orr: Right.

Mark Stapp: Yet at the same time, we have pretty good job growth. We see this economy actually functioning fairly healthy, but is there a disconnect between the types of jobs, those people that are taking the jobs, their incomes levels, and what’s available for them [to live in]. What is the characteristic of the new job growth and how does that match with what the assets we have on our books? Is it desirable? Is that gonna drive things in a different direction? Again, it’s just a question.

Labor issues

Dennis Hoffman: Mark, what you’re hitting on, and again from Mike’s comments as well, is this: I’ve been here 33 years, and real estate has always had an element of uncertainty, but also I think most people would say, “Hey, it’s cyclical, and when it’s up it’s gonna be down; when it’s down, it’s gonna be up,” and “ride the wave and be savvy.” What you gentlemen have just articulated here is a situation where I think the real estate market is probably one of the most uncertain areas, at least at this particular point in time, and, Mark, you raise a very good question.

There’s always been a concern here about the level of wages that jobs tend to pay vis-à-vis housing somehow being affordable. People have counted on appreciation through the cycle to kind of get by, but there’s always been this kind of churn through the real estate area … and so you think about that.

Here’s what I think about: You talk about the stock of housing. You both talked about the fact that very few homes have been built. I think or one of the national forecasters has like 40,000 permits being dropped, residential, in 2014 -- something like that. Now that may be an outlandish number. It’s not that unusual, I think, historically in an uptick or in a booming area. You guys are the experts.

You’d know that better, but here’s what I think about. For the better part of the last 50 years, Arizona had a way to build and build rapidly when they really needed it. It was snap your fingers, and all of a sudden, here shows up this massive supply of affordable labor to build these homes.

Well, as of about 2007, this state in many ways, through its legislative and law enforcement processes—and I think in terms of political or popular sentiment—made the decision that the old way -- we employed undocumented workers -- not only isn’t legal, because it’s always been illegal, but now we’re going to have strong teeth in terms of enforcement of these laws. So I think about, how in the world are we going to get all this construction done if we really do need to replace this housing stock? Now, I’m a big believer that markets find a way. The friction that Mike was just thinking about, I’m thinking, well, if people can’t find enough houses today, why hasn’t price gone up even faster? Maybe we’re on the verge of price taking off here a little bit and Mike is seeing that.

Michael Orr: Yeah.

Dennis Hoffman: I think it is what he’s seeing.

Michael Orr: That’s what I’m seeing. [Laughter]

Dennis Hoffman: Labor markets will fix themselves as well, but it will mean that we’re not going to be able to produce housing stock in that good old fashioned affordable way that we did over the years—

Michael Orr: Right.

Dennis Hoffman: —when innovative entrepreneurs leveraged crews of drywallers and roofers and plumbers and painters very effectively. I think that this is just going to be a fascinating time to think about the economy of Arizona and see how it’s going to adjust.

Mark Stapp: There’s an elastic limit to what people can afford to pay to live, and so, let’s assume that we can’t get all of this new housing on the market for a number of reasons, one of which is labor, the other of which may be regulatory. It used to be I could create a subdivision literally in eight months. I could be moving dirt. I could have a slab ready to pour for a model home and start selling in probably eight to ten months, very quickly. I don’t think you could find many communities within the metro Phoenix area right now where that could happen this quickly, so all of a sudden: pent up demand. Prices start to escalate. There’s an elastic limit here to what people can afford to pay, especially if we’ve got job growth which is not very real high wage earning.

Michael Orr: Right.

Mark Stapp: What happens to all those investors that can’t earn appreciation? You just can’t afford to pay. Does it make us an unaffordable business community all of a sudden? I mean, what happens to us? Boy, and that really changes the dynamic of the market.

Michael Orr: Yeah, and I think builders don’t build houses just because people want them. They build them if they can make a profit selling them. We’re currently at the point where they have to be quite selective, because in certain price ranges in certain areas, the cost of construction exceeds the price that they’re competing with with resale homes.

Mark Stapp: Right.

Ramping up

Michael Orr: That is changing quickly, so I think it’s changing much more quickly than the builders expected, and they will suddenly find they’ve got many more opportunities than they were expecting. The question becomes, “Well, how could we ramp up? Can we get enough permits? Can we build a new subdivision?”

Most of all, I would agree with Dennis, “How do we get the labor to actually do this?” Because you can’t just take anybody off the street and have them build a house. They’ve all got to have skilled trades, so it would not surprise me if we found a way around that shortage and maybe we have some new guest worker program that’s been implemented in some states, that’s unique to Arizona, that allows people with certain skills to come in and work, right? [Laughter]

Dennis Hoffman: What a concept. What a concept. [Laughter]

Michael Orr: It takes a lot of effort and time to get permission to work legally in the country.

Dennis Hoffman: Yes, yes.

Michael Orr: The builders won’t be willing to wait and have all those people apply for their green cards or their citizenship.

Dennis Hoffman: Right.

Michael Orr: That’s gonna be far too slow.

Dennis Hoffman: Oh, I mean, I’ve talked for years now about some movement toward a viable, enforceable guest worker program. The amnesty flags go up.

Michael Orr: Right. The question to me is: do we have enough people who are willing to get on a roof in August and put tiles down? Most people don’t think of that as a really exciting job, if they’re only going to get paid minimum wage for it.

Mark Stapp: That also affects other parts of the real estate economy as well, because you’re looking at retail development, and retail typically hires relatively low wage earning people: sales clerks, busboys, waitresses, waiters. Then you also have the hospitality side of this business, and so the hospitality business also hires low wage earning people.

Michael Orr: Right.

Mark Stapp: We’ve got them from various ranks. Does that really tighten up our labor market and then cause us to have to really stop and think about what are the things we are going to develop? Is it dampening the feasibility of developing some of these new projects?

People magnetism

Michael Orr: Well, I think that one of the root demands comes from population, which has traditionally been the thing that distinguished Arizona: the population had grown so fast between the end of the second world war and 2007. It’s gone pretty slowly since then, but it now seems to be gathering a little bit of pace. If we do start construction projects in earnest, then that’s going to bring more workers who would need more homes and it kind of builds on itself.

Mark Stapp: Right.

Michael Orr: At the moment, I don’t see that taking off. I know that the sales offices for the new home subdivisions, the few that are out there, are very busy and they’re pretty much sold out, where they virtually no inventory. They have some vacant lots, not an infinite number, and many of them are not in the places they want them to be. They’re too far out. They’d really like them to be in Central Chandler or somewhere really handy, and those are pretty well all gone.

Some people are holding on to land and they’re saying, “Well, I’d be willing to sell you this, but I think the market’s looking up. I’d like a decent price for this,” and the builder’s saying, “Well, if I pay that for it, I’m not going to make any money building houses on it.” We’ve got this kind of impasse, and in the meantime, the house buyer is going to suffer, because the retail market supply is dwindling away to levels lower than I’ve seen in 12 years.

Most people who haven’t tried to buy a house don’t realize that. They’ve just heard about this glut of homes overhanging the market for so long, it’s kind of imprinted on their brain, and when they first think about buying a house, they sit down with the realtor and say, “Okay, show me all of these homes for sale. Let’s put in a bid ten percent below market.”

Mark Stapp: Exactly.

Michael Orr: The realtor says, “Well, hang on a bit. I don’t want to waste my time here.” [Laughter]

Mark Stapp: Exactly.

Michael Orr: You’re probably going to have to bid ten percent above what the asking price is, and you’re probably going to put up with still not winning your first ten offers, because you have no idea how the market has changed. There’s a big education problem with people who just enter the market not realizing how different it is from just 12 months ago.

Mark Stapp: The inability to add in relatively inexpensive competitive supply quickly is going to exacerbate that problem, I think, in the next couple of months.

Michael Orr: Exactly.

Mark Stapp: Although there are a lot of vacant subdivisions, it’s still not that easy, but I think that there are builders out there that are ready to begin delivering. A lot of them are on the far edges though still.

Michael Orr: Right. Well, the permits are going up.

Mark Stapp: Permits have gone up.

Michael Orr: You can see signs, in the confidence indexes and things like that.

Mark Stapp: Yeah.

Michael Orr: The builders are feeling good about life. I mean, their stocks are way up from where they were last year, with the public companies. I think one of the complaints of the smaller builders is they’re still finding it very hard to get construction loans. If they are capital rich, like the big guys, they can go to the financial markets or issue shares. But if they’re trying to work with lenders to get construction loans, the lenders are still saying, “Oh, that sounds risky to me. Isn’t construction a depressed industry?” [Laughter] This sort of switch-around has really got people confused.

Things are going to get a lot a tighter before they start to ease up, because I don’t see a supply of homes coming to market quickly. People talk about the shadow inventory. I’ve never been a big fan of that, because although it’s kind of a concept that makes sense, I never felt it was gonna have a huge impact on the real business, until it actually comes onto the market. Right now, we could do with a whole trunk of shadow inventory coming to market: please! People need it! And lo and behold, nothing much seems to be happening. We don’t actually get any increase in foreclosed homes, even though everybody’s been predicting a wave.

Over the last three years, in fact, we’ve had a constant stream of, “Oh, yeah, foreclosures are down, but they’re gonna be going up.” But lo and behold, they just keep going down. Where’s the extra supply going to come from? The only way I can see is the normal market forces which create price increases, which then tempt more sellers into the market.

Mark Stapp: Right.

Michael Orr: That’s going to need a very significant change in prices, because most people are thinking, “My house is worth a lot more than anyone’s prepared to pay for it. I want to get back what I paid for it.” If prices went up, say like 50 percent, which is not unreasonable, given how low they’ve gone, that doesn’t even get us to above the long-term trend line. Then more people will say, “Well, I think if I got 50 percent more than it was worth last year, I might be interested in selling.”

Mark Stapp: Yeah, certainly.

Michael Orr: Not least, because I might want to go to a different area or get a house with a couple more bedrooms or something like that.

Mark Stapp: Right, which I think really is what we need for the labor market.

Dennis Hoffman: Right.

Mark Stapp: We need intra and inter-metropolitan area mobility to come back, because the real estate market has hurt those migration trends.

Michael Orr: Right.

Mark Stapp: Both intra and inter. I mean, do you see that as an issue Dennis?

Policy questions

Dennis Hoffman: Oh, I do. When I actually think about this wonderful area of real estate that you guys are both immersed in, I think about it in terms of its role in the economy, as we talked about, in terms of drivers. To quantify that, if you just take construction—and I realize real estate is complex. You’ve got the agents and you’ve got people in title companies and lots of folks in finance that are associated with it and what-not. But if you just take construction, at the peak in 2006, it was about eight percent of gross state product. It was about 20 billion, and at the trough, it looks like it’s gonna be around 12 billion, a little bit under five percent of gross state product.

Throughout the whole ‘90’s, the construction sector was five, five and half percent of the gross state product. It ticked up to six a little bit, and I kinda think about what’s the healthy level. That’s kind of the macro way of trying to address some of these questions that you guys are talking about here.

Ironically, it’s so very important for the fiscal health of the state. We kinda got into this funding the public sector by this funny way: A family moves here from elsewhere and they buy a home and we get revenue from, say, the property taxes that are paid on the home. And we get revenue from the goods and services that they buy, the furniture, fixtures. They might buy a new car. If the home is built, we get sales taxes on the contracting revenue that takes place. The irony is, that drives a lot of dollars into funding education, public safety, the whole gamut.

Then the interesting thing is, as a year goes by, the second, third and fourth year that family’s here, we really don’t ask them for very much. If they don’t spend much on transactions, we don’t get much in the way of revenue. Individual income tax is no big deal in this state -- it’s so low, right? The top rate doesn’t kick in until $300,000 anyway, but it’s actually okay. We’ve got this little system that has worked historically, because it’s okay if that one family doesn’t pay as much two, three and four years down the line, because there’s another family showing up every year.

Mark Stapp: Right.

Dennis Hoffman: It kinda just rolls forward. People would think about this and say, “Well, Arizona doesn’t have a sustainable model.” Well, interestingly, prior to this big downturn in terms of real estate, if you kinda think about it, it was pretty sustainable, but it was dependent upon—

Michael Orr: New people.

Dennis Hoffman: People magnetism that we were able to establish here.

Mark Stapp: New migration.

Michael Orr: Right.

Dennis Hoffman: I’m talking about another one of the uncertainties. To what extent will people magnetism come back? Will it come back in the same way that it did for the better part of 50 years? What determined it in the first place? Was it the job prospects that were offered here? Was it the pristine environment? Was it the climate? Lifestyle? Who knows?

We’ve still got a lot of these uncertainties, but where people choose to live -- finally getting back to Marks’ point -- where people choose to live in the valley is an important piece of this puzzle. Where are they going to work? How much commuting time are they going to take? What are they going to be able to afford based upon the incomes that they earn? These are all questions without answers, at least for me, that just add to this big bundle of uncertainty that exists in this area right now.

Michael Orr: Yeah, and I think the desirability of certain locations changes over time because of things like gas prices or light rail systems. I know there was a lot of skepticism about the light rail, but from a real estate point of view, anything that’s reasonably close to it is now very desirable and really hard to find.

Dennis Hoffman: Yeah.

Michael Orr: The acceptability of remote locations is something that is measurable by its price, being that people drive until they qualify.

Dennis Hoffman: Right.

Michael Orr: They know what they can spend on the house and they will drive that far.

Dennis Hoffman: How does that change now, that over the last, I would bet five years now, with the way the auto fleet is now turning over so dramatically. We have numbers today, with the fuel efficient automobiles just going off the charts, and so I think fuel efficiency may be close to doubling over the last five to seven years.

Michael Orr: Right.

Dennis Hoffman: I’ve had people say to me, “Well, because of gas prices and because of the sustainability issues, people just aren’t going to live on the edge anymore.” I said, “No, it’s not the length of time that you drive necessarily, it’s the cost of driving.”

Michael Orr: Yeah.

Mark Stapp: Right.

Dennis Hoffman: At the same time that the price of gasoline is going up, the efficiency is going up faster.

Mark Stapp: Yes.

Dennis Hoffman: The cost of driving may actually be less for people who can afford to change that car out. We’re not going to not build on the edge. We have no choice, frankly, but to continue to build on the edge.

Michael Orr: Yesterday, I did my preliminary analysis, city by city, of how we did in March in pricing, and lo and behold, the cities with the biggest increase in prices over last year were in Pinal County, and the top of them all being Coolidge: probably the most remote outpost of the greater Phoenix area, but one that’s recovering from an extremely depressed price! That was probably the most beaten area of all, where all the builders left, so when you get down to $27.00 a foot, it doesn’t take very much to get you up to say $35, and that’s a huge percentage increase.

Mark Stapp: Right.

Michael Orr: People tend to pour scorn on these remote areas, but if you can buy at $35.00 a foot an almost new house, it can be quite attractive, especially if you’re going to buy a very economical car to commute to wherever you’re going to work.

Mark Stapp: Yeah, there’s the idea of this escalating price because of constrained supply. The only way we’re going to offset it with any significant supply is to go on edge.

Michael Orr: Yeah.

Mark Stapp: Either that, or get the State Land Department to release a whole bunch of land that they own or control in the central northern part of the metro area, and that’s not going to happen.

Michael Orr: Yeah, most of the supply of developed lots is on the edge. I guess those big chunks of state land that could be released down below were south of Apache Junction. That wouldn’t be quite as far out.

Mark Stapp: You’ve got utility issues.

Michael Orr: Yeah.

Mark Stapp: You have resource issues, and the Land Department is going to meter that stuff out. They’re not going to dump it on the market.

Michael Orr: Right.

Mark Stapp: They’ve got other issues that they have to deal with, but they’re certainly a significant element, because they’re helping shape the pattern of development, so when you start looking at, not just the aerial photograph, but the ownership and the geopolitical realities, you begin seeing the fact, “We got no choice but to go out.”

Michael Orr: Right, and I’m not seeing right now the shortage of homes translating into a shortage of land, yet.

Mark Stapp: No.

Michael Orr: I would agree with Dennis, it translates into a shortage of labor first, [laughter] because most of the builders have made sure they’ve got plenty of land for when we come back. I think they’re finding it harder to ramp up actual production of houses on those lots.

Mark Stapp: Mm-hmm.

Michael Orr: They don’t want to get ahead of the game, so they’re a bit cautious too. Even though the sales offices are saying, “Here we’ve got really good traffic flow,” they don’t want to overbuild until a few months go by and it looks like this is going to be sustained.

Mark Stapp: I worry about capital markets too and the impact they have in the policy-making that’s surrounding the capital markets, and also then individual players in the capital markets that are going to greatly impact how fast and what kind of growth we have. That’s both good and bad. It should be providing some level of discipline, but it also may really retard opportunities that we have here.

KnowWPCarey: I want to say thank you very much to Dennis Hoffman, Mark Stapp and Mike Orr, and I think we have committed to doing this again next month.

Mark Stapp: It will be interesting to see how things shape up.