I don’t check my home equity every day, goes a joke among the Vanguard-Buffett-DCA crowd, why should I check my stock portfolio? It’s a riff on the availability heuristic: if I think it, it’s important.
‘Home’ is super available. Vacation rentals, of someone’s home. A chunk of net worth is home. Neighbors move. During Covid we were stuck in our homes. People began to work from home. After Covid the home market exploded. After that rates ran up. ‘Home’ is everywhere.
Transcript: “Buying a home? Rocket mortgage will cover one percent of your rate for the first year at no cost to you, saving you hundreds even thousands. With Inflation Buster that means more mini-vacations, a lot more lattes, and more date nights. Now imagine if rates drop within three years of your home purchase. You get exclusive savings when you refinance at that new lower rate. It’s more cash in your pocket. Save when you buy today and refinance tomorrow. Visit inflationbuster.com to get started.”
The good. Rapid fire: It’s not a house, it’s a home. One percent is a nice whole number, and worth more (psychologically) than 0.99999999%. First year… appeals to our myopia. More mini-vacations… highlight the opportunity cost. At no cost to you, and if rates drop… avoids our ambiguity aversion. Visit… as a call to action. 🧑🍳 😘
The bad. None!
The interesting. A picture is worth a thousand words, and this video is good.
We’ve tracked ‘average’ monthly home payments (1971-2022). On a four-hundred-fifty-thousand dollar home, Inflation Buster saves about $200 a month. Put another way, it’s a year of payments on a four-hundred-thousand dollar house instead of the more expensive one. None of that factors into this ad. It’s not the customer’s language.
Interest rates and home prices are not the important metrics. Only monthly payment matters. That’s the conversation in this ad.
You’d think price matters but when buying a home it doesn’t.
At least the title insurance does not.
On Acquisitions Anonymous, the crew looked at a title insurance company with one million in sales which serves residential real estate clients. One aspect host Bill D’Alessandro wondered about was deal flow. Does the business get clients through advertising or does the owner have specific relationships? If the latter the acquirer must inquire.
But advertising doesn’t really exist for title insurance, “the customer does not shop for these services, you can’t really advertise to the consumer,” Bill observed. And there’s no advertising for two reasons.
Second, the fear of being wrong. People switch to avoid loss, the loss of a title snafu is much greater than the loss of the cost of insurance. The JTBD of title insurance is protection. Switching from the default company to another introduces psychological discomfort if something goes wrong. I can only imagine telling my wife, “no, no, I saw an advertisement on Facebook for this cheaper company.”
Forming macro opinions or listening to the macro or market predictions of others is a waste of time. Indeed, it is dangerous because it may blur your vision of the facts that are truly important. Warren Buffett 2014
The follow up to “this time is different” is to ask “Why?” Sometimes it is technology, the iPhone allowed location based apps. Sometimes it is the rules, like regulations. Sometimes it is the conditions of the system.
Conor Sen considered if the 202X housing market was like 2006 or if ‘this time is different’.
“The underwriting is so much better. We aren’t seeing the same construction as 2006 because of the supply chain issues. Builders are more conservative. The demographics are stronger. We have broader inflation. It’s harder to see what’s worse now versus then if you’re worried about a bubble situation. I don’t see it, yet. Maybe in a couple of years.”
Sen’s suggestion is that once the demographics change and there’s fewer people then the housing demand will change. The right framing for housing might be: what other ways is there a housing market collapse? We saw the 2006-2010 version: