Home Builder Sentiment Part of Broader Problem?
Low home builder sentiment is not about cold winter weather. Home builders are doing the math.
New homes are selling at the rate of about 400k a year. Builders have been pulling permits and starting new homes at the rate of about 610 to 670k a year. Thanks to new mortgage rules effective Jan 10th, probable rising interest rates, and GSE reform, home builders know fewer buyers will be able to get loans, potentially further reducing sales. The perception that new homes equate to luxury homes built for one percenters in not correct. In fact average Americans have been a targeted audience, precisely the demographic suffering as America’s middle class shrinks. The number of new renters has grown at a rate ten times the number of new owners. Homeownership rates are expected to continue dropping. Builders know that renters don’t buy new homes. Of the 2.1 million new households expected to be created this year, more than half will rent, not own, and certainly won’t be buying new homes. Existing home sales and price increases are slowing for the same reasons.
As we move forward with fewer existing home owners underwater, those folks will be able to sell. Existing homes sale of course compete with new homes and tend to be more affordable. Investors may also be buying fewer homes this year which will ease inventory constraints that have been driving prices up.