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- The Vertical: Jake’s Weekly Brief • June 25 2025
The Vertical: Jake’s Weekly Brief • June 25 2025
The Market is Rewriting Itself
Jake Heller
June 25, 2025
EXECUTIVE SUMMARY:
Land risk exits balance sheets. Five Point’s $2.6 billion buy in to Hearthstone crowns land banking a mainstream asset class.
Builder stress surfaces. KB Home Q2 revenue $1.53 billion (-11 %), net orders -13 %, and 9,700 cancelled option lots show how fast underwriting can flip.
Seller loss risk doubles. 6 % of U.S. listings likely to close below cost (4.4 % last year); for post 2022 buyers it’s 16.4 %.
More homes, still high rates. Inventory up 20 % YOY while the 30 year mortgage sits near 6.8 %. Conditions finally feeling more balanced.
First signs of life in lending, thorns still attached. Single family construction loans just ticked up for the first time in two years, yet late pay share is a 10 year high (1.4 %).
Compass v Zillow lawsuit. The fight over “pocket listings” could reset how privately marketed homes appear online.
AI everywhere. Voice field logs, container micro factories, and boiler tuning algorithms are slicing hours of grunt work into minutes of margin.
LAND BANKING REVOLUTION
Developer Five Point is buying 75 % of Hearthstone (AUM $2.6 B, 173 K lots).
Fees > flips. Hearthstone earns ~3 % of land value without swinging a hammer.
Speed = moat. Shave 6–9 months off approvals and you’re a capital partner, not a flipper.
Operator takeaway: Land banking is institutional now; expect more AUM priced roll ups.
MARKET SNAPSHOT - MAY RESALES
(Source: NAR)
Latest | YOY | |
|---|---|---|
Homes for sale | 1.54 M | ▲ 20.3 % |
Months supply (6 = balanced) | 4.6 | 3.8 → 4.6 |
Median sale price | $422,800 | ▲ 1.3 % (record May) |
30-yr mortgage | 6.81 % | ↓ 0.03 pt WOW |
BUILDER PULSE - KB HOME’S REALITY CHECK
Q2 2025 | YOY | |
|---|---|---|
Revenue | $1.53 bn | -11 % |
EPS (diluted) | $1.50 | -30 % |
Net orders | 3,460 | -13 % |
Cancellation rate | 16 % | +3 ppts |
Backlog value | $2.29 bn | -27 % |
Cash | $309 m | |
Avg. build time | 140 days | 20 % faster |
Lot pipeline shock: KB scrapped 9,700 optioned lots that no longer penciled.
Zonda May snapshot: 38 % of builders cut prices; 57 % of communities offer incentives on to be built homes; entry-level ASP $328 K (-1.4 %).
CONSTRUCTION PULSE
Supply pipeline watch: May housing starts 1.26 M SAAR (-9.8 % MOM) while completions 1.53 M (+5.4 % MOM), widest gap since 2020. Expect leaner deliveries by late 2026 unless starts rebound.
SELLER RISK RADAR
Group | Chance of selling below cost |
|---|---|
All listings | 5.7 % |
Bought after Jul 2022 | 16.4 % |
Condos (all) | 9.9 % |
San Francisco | 19.6 % |
Providence RI | 0.5 % |
A 3 % nationwide price dip lifts risk to 8 % and pushes post 2022 buyers to 25 %.
COMPASS vs ZILLOW - QUICK TAKE
Compass model: Private “phase 1” → Coming Soon → MLS.
Zillow rule: Any public marketing must hit all platforms day 1.
Suit: Compass claims antitrust; Zillow argues fair access for buyers. Outcome could reshape listing strategies nationwide.
CREDIT & COSTS
Single family construction loans: +$0.6 % QOQ to $90 bn (first rise since Q1 2023).
Late pay share: 1.4 % (10 yr high).
Materials risk: Oil volatility after Mid East flare ups (budget extra 3-5 % for Q3 steel & diesel).
Lumber: U.S. sawmills at 64 % utilization even as Canadian softwood tariffs may double this fall (think higher costs, not higher supply).
BUILD TO RENT HEAT MAP
64,000 single family rental units under construction; 57 % sit in the Sun Belt.
Phoenix ~10 000 units (#1); Dallas 5.5k; Houston 4.5k.
Myrtle Beach & Nashville each top 900 units, proof the model is spreading to mid tier metros.
FED & MORTGAGES
July cut odds: 22 % (CME).
What matters: A slide from 6.8 % to even 6.4 % could unfreeze first time buyers by autumn.
AI EDGE: TECH TO WATCH
# | Drop | Why it matters |
|---|---|---|
1 | Voice to log jobsite earbuds - SMARTBUILD’s “SMRT-E” and Benetics both launched earbuds that turn spoken notes into formatted reports and RFIs, in real-time and across 15+ languages. Pilots show 30% faster daily log completion. | Jobsite paperwork sucks. These tools let superintendents and subs talk through their observations and have them auto-logged. We’re testing ElevenLabs voice AI → Procore sync to eliminate manual field reports entirely. |
2 | Pop up robot factories - AUAR raised £5.1M to deploy shipping-container “micro-factories” that cut and assemble timber wall panels using robotic arms. Claimed 30–40% cost savings and faster schedules for mid size builders. | Infill ADUs and missing middle projects often don’t pencil due to labor costs. These robots may flip the math. We’re watching for a U.S. demo. |
3 | AI-run HVAC controls - Runwise raised $55M for its smart building platform that automatically adjusts boilers and HVAC across 10,000+ buildings (Related, Douglas Elliman). Owners report ≤12-month paybacks and up to 30% energy savings. | This is free money for hold forever deals. Installing Runwise style systems could boost yields by 50–75 bps and improve refi proceeds. |
Takeaway: Voice capture, container robots, boiler brains - each trades cap-ex for speed & margin.
HOW WE ACTUALLY USE AI
Old task | AI Tool | What it replaces / why we use it | Time / Money Saved |
|---|---|---|---|
Sifting through 30+ housing news sites every morning | Manus + Grok | Automatically summarizes the most important housing and construction news into one feed | ~1 hour/day |
Building a custom CRM for our needs | Built our entire CRM in a day—no dev time, no Salesforce setup, completely custom and specific to our strategy | Saved ~$100/month | |
Researching private equity firms for deals | Manus | Finds PE groups by region, portfolio, and strategy, automates what used to take hours per lead | ~3–5 hours per deal |
Searching HOA rules & CC&Rs manually | HOA Hotline (Replit) | Built a bot that finds exact clauses in governing docs - no more flipping through 100+ page PDFs | Saves hours on each project |
Manually reviewing company financials | Chat GPT/Claude | Custom script tracks P&L shifts and flags anything off, makes recommendations to improve the bottom line | Cuts costs and increases revenue |
ACTION ITEMS
Re stress test land deals with KB’s tougher cancellation bar.
Re price condos in SF, Austin, Oakland exit scenarios.
Leverage inventory bump to negotiate spec buys before any Fed cut.
Update lumber clauses ahead of tariff hike.
Deploy one micro AI tool this month and bank 5+ hours a week.
JDJ CONSULTING CORNER (SPONSORED)
Need entitlement horsepower, RTI acceleration, or a tricky variance solved? JDJ Consulting moves projects from idea to permit across SoCal every day.
→ Let’s talk: jdj-consulting.com
Questions, ideas, or a land chat? Hit reply - always happy to dive in.
— Jake