Why Homebuilder Taylor Morrison Just Had Its Best Month Ever

residential real estate market. So to get some more color on that, we welcome Cheryl Palmer, chairman and chief executive officer of Tayla Marlin Marrison. Taylor Marson is the fifth largest home builder and developer in the United States. Joints us on the phone from Scottsdale. Cheryl, thanks so much for joining us here. I know your company has been moving more towards virtual sales of residential real estate. So this pandemic, I'm guessing as accelerated that process. Talk to

us about kind of how your business is changing. Good morning. Thank you for having me. Of course. You know, um, I call it the silver lining of COVID that you know, our industry has really had to make some adjustments on how we communicate. We've we've you know, always been known for being a little kind of archaic and the way we build houses. But I think the first step was really how we market and interact with consumers the way they want to be interacted with. So you're absolutely right.

When the pandemic started and everybody went home and we had to generally lock our sales office doors and put safety protocols in, we had to, you know, communicate with our buyers differently. And we had introduced a new website late last year that had an infrastructure with the intentions of really creating a virtual environment. And so what we've seen is the consumer really just loved this virtual environment.

In fact, we introduced I think it was early April, we introduced this online of apointment system, and our customers could schedule an appointment to either come in and meet with someone privately and get a private tour, or they could schedule an appointment to be walked through a virtual three D tour of our homes or maybe just to talk.

We found about eight percent of the customers still wanted to come in for that private tour, but many did not, and UM since then, we've introduced self guided tours so they could you walk into one of our inventory homes. We've introduced an online reservation system where they can just hold a house and then you know, go directly to contract. It's been tremendous. We've had probably in the last eight ten weeks UM, something like two fifty sales without a

customer ever walking in the sales office. And your months of June was your best months ever. You sold sev hundred and fifteen homes, So congratulations on that. I'm looking at your website and there really is a huge variety, starting in the two thirties range and going right up to you know, even past half a million dollars in some areas of Arizona. What about prices though, in general?

Have they been dropping during the pandemic. I would tell you that if you were to go back to late March early April, everybody was speaking to understand what was going to happen with the consumers, you know, kind of mindset, what was going to happen with jobs, and I would tell you there was a freeze on prices. I don't think because the inventory has always been so tight coming into the pandemic and even tighter today. I don't think

you saw this tremendous dropping prices at all. I mean, you had situations, you could have had a close out, things that have been very typical to the industry. But in total, I'd say no prices have held, and if anything, over the last many weeks, I would tell you that there's been very thoughtful price increases going on across the industry.

But once again, you have to remember that we are sitting at very very low inventories in both the resell and the new home market, and I think as you look at kind of the way the consumers thinking about the relationship with the home, we've really started to see

a bias to new We've seen that. You know, there's a lot of reasons why people are moving today, right It could be because they need more rooms, they need more office space, really around wellness features, um and so it's it has helped, it has kept prices pretty healthy. Sure are you seeing you know, the phenomena we've seen or heard about a right about since the pandemic is a kind of a de urbanization move, and you know, as people try to get to a less dense living environment.

Do you think that it's a longer term trend or maybe just a short term effect from the pandemic. It's such an important question, and it's some that's gotten a question that's gotten a lot of kind of i'd say chatter over the last um, you know, ten twelve weeks. Interestingly enough, I would tell you at the beginning it

was just that it was a lot of talk. Um. We UM do a lot of research and talking to our buyers are shoppers that are walking in the door, the folks that are coming on through our website, and we've been doing that every week since this started. And for the first time, I would tell you that we are seeing in our buyer data, UM this I don't want to call it a flight to rural or suburban,

but we're absolutely seeing those numbers rise. And I think what you're really seeing is that people are thinking about being able to work home and not having to do those commutes. I'm being able to buy and you know, look at the difference in what happens to prices as you move out into kind of the suburban market. Um, we are seeing a lot more interest and a lot of interest as people are in that shopping mode as well. It's not just for single family I think that, um,

that's probably going to be the beneficiary. But we're seeing a lot of interest around town homes as well. UM, but yeah, not not kind of in the central core, Cheryl, we have to leave it there, but a pleasure to speak with you. Cheryl Homer is chairman and CEO of Taylor Morrison based in Scottsdale, Arizona, but with a presence in many many states, primarily Arizona and California and Colorado, Florida, but also in sort of the more north states like Oregon,

and then some of the southeastern states as well. We have Washington in there and some really beautiful homes on this website. Poll you could get someft in very easily. I got plenty of real estate right now, the fifth largest home builder in the United States. So what exactly is going on in bond markets here in the United States? If you give your money away to the US government for ten years, you get sixty basis points right now,

which doesn't seem like a whole lot. Let's bring in someone who's been working in the field for a long time, Tim Vogel and Financial Couple Markets, and he joins us from Memphis, Tennessee. Of course, f h N is a national fixed income dealer, as we all know, Jim, are you board right now? Let's just let's just be blunt about it. Are there interesting moves in the bond markets

right now? Are you just waiting for the Fed to start getting out of the way so that you know, other buyers have influence again, Well, this week has been interesting because as we came into the third quarter, people were concerned that we may not see demanded treasury auctions to finance all the stimulus spending. Instead, we have seen an excellent response to the treasury supply, even as it grows every single month, and that's translated into lower interest

rates because the fear of supply is diminished. So, Jim, let's talk about the FED here. Um, you know the phrase I'd like to use in people listening kind of know, this is the FEDS kind of back stopping the market here. How long do you think they can continue to do that? Two to three years? Well? Yes, Um, they've got a

proven track record of managing expectations that long. And there's going to be a long period of time before people are convinced that the economic we can recover to the point that inflation is going to return and send rates up from obviously low levels. Yeah. I mean it's interesting the Fed literally, with its with its forecast, has you know, sort of hinted it to to three years, if not

explicitly outright said it. But it will only take for the market to get a whiff of inflation at some point, if you get you know, a few more gang blusters, jobs numbers or what have you, for the curve to steep in quite sharply again, right, Jim, have you seen this before? Is it an actual risk? Absolutely? Uh? Curve

steeping in? Is the question really for the next at least the next six months, if not for uh, an extended period in which is why it's so interesting that this week we absorbed the long part of the treasury supply. Their treasuries were sort of left um by the side of the road during the stock market um excitement during the second quarter, and now treasuries aren't necessarily rebounding, but they're certainly getting a lot more attention than they did

over the previous two months. Such where you know, right now, given where we stand, given kind of the economic outlook, given some of the uncertainties about some of these states that are seeing a surge in cases. Where do you see value or opportunity in the fixing come markets today? Uh, you have to pay very careful attention and try to find the best corporate bonds that you can. If you are trying to produce a little bit extra yield, you've

got to consider lower cupon mortgage backed securities. But then in terms of the all important yield curve strategy, all of our work this week that tested different scenarios suggested that concentrating around the seven year, it's a great place for an awful lot of intermediate bond portfolios to concentrate around the seven year. That's interesting, Well, who who would

they be hoped us about flows? Brian Shapata had a nice column today about pension funds, and you know how it's conceivable that they could actually sort of do to debt markets what they used to be able to do or are able to do to equity markets, and that has moved the market. Did you see it? What do you make of that idea or what do you make of that idea? Jim? Pension funds are critical, particularly at

the long end of the market. They are critical to the credit um markets in terms of their demand there, but in terms of current flows, the massive size away from the FED is from households UH that have basically put their their spare cash to the extent it's not in stocks, into mutual real funds and into bank deposits. The bank deposit growth, even taking out some of the stimulus payments, et cetera, has been extraordinary this year, Jim. You know, it's we're several months into this pandemic and

several months into the economic fallout from it. What's your thought about credit quality? Are we're seeing We're going to see the bank's report next week. You're gonna set aside some more big reserves. But as you look across your portfolio, are you starting to see some concerns as it relates

to credit quality? Not yet, because the big worry about credit quality inter recession is that the taps get turned off too quickly and so that it's really not a credit problem, it's a liquidity problem, and that's certainly what aggravated the financial crisis twelve years ago. Here we've got plenty of liquidity thanks to the FED into those flows that we've already talked about and so we will not see the um the real credit problems outside specific industries

developed probably until early part of next year. So we'll be looking for signs that credit might deteriorate. But right now people have have banked, in effect, so much debt on their balance sheet that they won't need to come to market uh to to raise new funds unless they unless the economy improves and they start spending those dollars again. Jim, what coronavirus data do you watch to give you any hint about what might happen in the treasury market. We

look very carefully at transmission rates by state. We look very carefully at what we call real time mortality rates and how they are shifting as Sun Belt states undergo a tremendous increase in their cases. And the bond market has been watching, in fact, a slower pace of COVID nineteen statistics compared with the stock market that reacts every

single day to daily data. Unfortunately, from an economic perspect if, daily data are just too erratic and have too many reporting lags and errors to really be a dependable source for what's happening in the bond market. So right here, what are some sectors Jim May on the corporate side. You're mentioned might as they go to the corporate side to get some yield. There's some sectors that you find

attractive here. You've got to keep looking at the pharmaceuticals, the obviously the tech sector never really needs cash, but there's an awful lot of attractive paper out there. And then you have to selectively look at lower rated industrials when they get out of line with stock market performance. So in particular, you want to try to take advantage of wider credit spreads down the curve or down the credit curve when stock market volatility rises. Well, it's always

a tutorial to speak with Jim Fola. I have to say, Jim, thank you. How are things in Memphis? Very briefly, Uh, quite well. Uh we had a spike, as many places did in the South, um in recent weeks and that appears to have leveled off. Thanks, We'll stay safe. Jim Vogel is with f h N Financial Markets, and obviously it's a primary dealer. Jim has been steeped in treasury

market activity for a little while now. Yeah, it's actually it's great to speak speak to Jim and kind of looking at he's saying, if you need yield here, you might have to look on the corporate credit side, given where treasury rates are. So we'll certainly pay attention to that coming up. Balance of power with David Weston for

Vannie Quinn and Paul Sweeney, and this is Bloomberg. Well, I guess the narrative about the pandemic right now is one of trying to balance the medical risk of reopening the economy with the economic risk of not reopening the economy, and that's being played out across the country with varying effects. Laurence Sour, Assistant Professor of Emergency Medicine that JOHNS Hopkins uh School of Medicine, joins us on the phone. I should note that the Bloomberg School of Public Health is

supported by Michael Bloomberg, founder Bloomberg LP and Bloomberg Philanthropies. Lauren, thanks so much for joining us here. I think the conversation. One of the more recent aspects of this conversation is schools reopening schools in the fall. What do you think as the most prudent um path there? Yeah, so there's been a lot of conversation about schools and what it

means and the pros and cons of reopening. I think everybody wants to see schools reopening, and we understand that not being in school and and missing as much classroom time as they have is going to be detrimental to varying degrees to students and kids across the country and truly across the world. The thing is, we have to do it safely or else we'll just be back in this situation and it'll be even more disruptive in a

few months or next years. So we have to take the time of the summer to plan how to do it safely. Our schools don't have a ton of resources already. Um so the idea that they could bring in additional resources to do all the things that are being asked to them to bring kids back safely is really hard. Yeah. I mean it strikes me that, I mean, one child gets it and that's that's schooled one for for you know,

for a long time, right, Lauren. Yeah, I think we're still trying to understand how it, how virus transmission happens and kids and what it looks like. We know that in general kids seem to have less severe disease um, but we are still doing a lot of work on how transmissibile it is and kids and how they spread

the virus. And we also have to think about the parents, UM, and the teachers and the administrators in these schools and how it could impact them if they have a sick kid who maybe is in symptomatic asymptomatic and brings the virus to school and then all of a sudden, all your teachers are sick and several of your kids are sick, and then their parents and their families get sick too. So, Lauren,

what's the latest thinking on second way? I mean, here in the New York metropolitan area, I think we've generally done a quite a good job, as well as the Massachusetts even in Maryland and you're where where you are, UM is there it is it still fair to think about a second wave because I look what's happening in California and Florida and Texas, and to me that is not so much as a second wave but almost their first wave quite frankly, So, how how did you think

about that? Yeah? I completely agree with you. I think most places we're not feeling like we're out of the first wave. I think there's been a lot of talk about second wave. Um, But when we're seeing six cases or more across the country, UM, you know, and having our our repeatedly having our our largest days of increased cases, UM, it's hard to think about that as a second wave. Uh. I think there will be a second wave, but I think we have to get to the end of the

first wave first, and I don't think we're there yet. Lauren, what do you make of the idea that airborne particles now should we looked at the w H O been you know, refusing or at least not really taking it up seriously, And there's a growing consensus now that perhaps it should. Yeah. Several hundred scientists wrote a letter, I believe, to the New York Times UM, indicating that they wanted the WHO to take the role of airborne particles more

seriously in the spread of COVID nineteen. And I think the guidance has changed a bit, and the w H two is thinking has changed a bit. Um. We are continually learning about the virus and how it spreads. I still do believe that droplet transmission, so those bigger droplets are what's driving the bulk of transmission. And I think there is a role for aerosol transmission or airborne transmission.

But it's in specific circumstances like inside close quarters things like singing or loud talking or yelling, UM, places where the ventilation is not great. So there are specific circumstances where those are going to be the drivers. Those are that that airsol transmission is going to be the driver. But it's those very specific circumstances. Lauren, you're just mentioning the World Health organizations. How important is it that the US is pulling out of the w h O. UM.

I hope that that it doesn't happen. I think it's incredibly important to put resources towards making sure that it doesn't happen and that we truly evaluate the impact of a decision like that. UM. We will lose a lot of access to a lot of international expertise, a lot of international information, UM, global collaboration around the exact things that we are having such a hard time handling here

in the US right now. UM. So it will impact our ability to UH manage and understand the seasonal flu vaccines, UM, the potential for COVID vaccines, UH, global therapeutic trials, all of those things. UM. The w h O has a very large role in and we support the w h O, and we participate through our relationship with the WHO and our role in the w h O. And so the idea that we would pull out simply because of a a disagreement on how this COVID nineteen response has been

managed by them is truly unbelievable and very very shortsighted. Basically, Lauren, do you stop getting updates on not on the latest science if you pull out of the w h O. Or are they not obliged to sort of share it with the world anyway, They are bliged to share it with the world. But but, and we would receive that information purely as a recipient, just like any UM anyone else.

But we currently have a role at the table in decision making, in in primary information sharing and information gathering, and supporting policy development, supporting operational response decisions and all of those things. We would simply be on the receiving end of the actions, not UM as an active and willing participant and not as a you know, a global

public health authority. UM. So when you're not in the beginning edge of that conversation, you have no say in how the conversation plays out until you're at the end of it. Wow, all right, Lauren, Thank you always learned

something new from our conversations. Lawrence Hower is Assistant Professor of Emergency Medicine at Johns Hopkins School of Medicine, and of course, the Bloomberg School of Public Health is supported by Michaelaurd Bloomberg, founder of Bloomberg LP, Bloomberg Philanthropies, and Bloomberg News. So, as Dave Wilson was telling us earlier, Michael Batnik at ridholes Well Management talks about comparisons between US tex stocks gains and the bubble twenty years ago.

I particularly want to bring this up with our next guest, now is David Kat's, chief investment officer at Matrix Asset Advisors with more than eight hundred million dollars in assets under management. David, it is great to speak with you. I know that one of your sort of areas of expertise is the tech sector. You've obviously, you know, been following that area in the melt up for for many years, decades even, and and you did like some of those docks. What do you make of the idea that we might

have a lot further to go. If you look at comparisons between how the NASDAC one hundred sword in the five years leading up to the March two thousand peak and how it's it's been quote unquote soaring up to now. Yeah, we would not look at that and say, oh, good, you have five years and take comfort in the current melt up because it ended hideously and it took ten years for the Nattic to get back to break even.

Uh So, we think the market is going to be higher over the next nine to twelve months, but we're getting increasingly wary about the tech melt up right now, and we would not be using the higher stock prices every day as a signal to jump aboard. We think best case, a lot of returns have already been made in that area. We think that there are a lot more risky in terms of the downside, and we do think there are lots of the areas of the market that have been left behind entirely by the recovery and

are selling a pretty attractive valuation. So you've got parts of the market at thirty and forty times earnings and then a lot of stock at ten and fifteen times earnings that are paying three and four percent yields, So we think investors should really focus on the the better businesses. But at lower evaluations you went through the bond numbers before interest rates or zero bonds are paying less than

a half percent. At some point getting three or four percent dividends is going to be a really good thing, all right. So David, what are some of those sectors that you think have been left behind that might offer some attractive return. So in terms of sectors, um, you know, we have not like utilities for a very long time. They've been an outlier, bad performer this year, so we've really warmed up to them and we've been buying in

that group. We think you can buy select healthcare companies like a CVS or Murk UH pretty attractive, select consumer staples. We think that telecom companies like Verizon UH and A T and T are very attractive. Also some media companies like a Comcast or Viacom. So there are lots of really good businesses out there. If you have a six or twelve month time arizing, and all the businesses that I mentioned are going to be able to get through the COVID recession and very good form, have very good

balance sheets, and our survivors. You say that, David me convert you with something a little devil's advocating if you like. So those telecoms, for example, we all know that there are problems right now and making content and in sort of fighting with all of these other streaming services to gain eyeballs. If covid hasn't sort of made that go

faster than I don't know what will. What are you seeing across media and across telecom that makes you believe that, Yeah, the particular companies you mentioned are in a better spot well in terms of Comcast. You know, while they have NBC, they also provide the pipes into the house, so that

business is doing very very well. So they're very well diversified their global h and as more people need the internet, uh, and as more people are sitting at home looking for something to watch on whether it's a TV or a computer or your iPad. Uh, they're a net beneficiary. So they've gone through this in very good form, have consistently raised the dividend. We really like management there. Viacom is is a little bit different insofar as uh, they are

a content producer and they've got a massive library in powamount. Uh. You know, if you look at Netflix at sixty or seventy or a hundred times earnings and at a two billion market cap, and then you look at Viacom with his massive content at a thirteen billion dollar market cap, at some point something's going to be better for them. They are doing quite well in terms of their earnings and running the business. Uh. CBS is a very strong franchise. End.

You know, people are looking at content, whether it's over the top, whether it's you know, linear or watching on television. Uh, they are looking for content, and and six and a half times earnings, you're not paying a lot for that. So David, let's just switch gears real quickly to another sector that has really been out of favor. Uh. And that is kind of some of that energy patch. I'm looking at w T I crude here. It's just about forty dollars a barrel. Anything there that gets your attention.

So we have owned the energy and have been beaten up pretty badly. We think from here, if you have a six to twelve month time horizon, that there's a pretty good likelihood that when the economy recovers, oil prices will recover into those energy stocks will come back. Um. We try to stick to the highest quality energy company, so CVX is absolutely committed to a very very healthy yield.

We think that stock could be higher. Schlumberge, which is you know, the top quality driller out there, is going to have pretty slow business, but they have revamped themselves. They are going to be positive cash flow. They definitely will be a survivor. And the stocks at seventeen and a half, we think it ultimately goes to thirty or forty. So it's a very out of favor group, but we think you're gonna make money if you can hold your

nose with it. There are other places that you can get in the market with out that type of risk. But we do think if you are looking at energy and don't mind the risk, you'll do okay there as well. David Cats, thanks so much for joining us. David at the chief investment officer at Matrix Asset Advisors about eight hundred million dollars in assets under management, getting his thoughts on the market. Thanks for listening to the Bloomberg Markets podcast.

You can subscribe and listen to interviews at Apple Podcasts or whatever podcast platform you prefer. I'm Bonnie Quinn, I'm on Twitter at Bonnie Quinn, and I'm Paul Sweeney. I'm on Twitter at pt Sweeney. Before the podcast, you can always catch us worldwide at Bloomberg Radio