Although the U.S. has been in a decades-long housing shortage, we have also found ourselves in a time where homebuilders across the country are pulling back on development. What? How can both things be true? Stay with me here.
This riddle is at the heart of the boom-bust nature of the housing market. With changing incentives, fluctuating interest rates, and ever-changing regulations it’s really no wonder that there is never a time that supply lines up with demand. Solving this predicament means that more building is required during downturns, which will likely require some sort of public program to subsidize it.
Think about where building has been most of the past year. Builders have been maxed out trying to figure out how to supply enough houses for everyone who wanted to buy one. Building companies couldn’t find enough land, workers were scarce, and lumber prices were exploding. Supply chain issues were rampant – it was like a scavenger hunt for everything from dishwashers to garage doors, everything was out of stock and back ordered.
But the one thing that builders were not short on during this time? Qualified buyers. Interest rates were low, household savings were high, and suddenly millions of workers wanted to set up home offices. Building companies had to get creative with forming waiting lists and even holding elaborate lotteries to pick a “winner” from the list.
But now? With interest rates being higher, it has made buying new construction more difficult for many.
The problem, simply put, is that sales of new homes are falling at the same time that a wave of homes are hitting the market. The number of new homes that have been completed but not yet sold hit a 15-month high earlier this year. Redfin reported that at that time, buyers were trying to back out of sales agreements at the fastest pace since the early weeks of the pandemic.
At the end of the day, this slump and slowdown in sales isn’t going to last forever. The market will continue to evolve and change, as it always does, and when buyers are ready to jump back in, there won’t be anything for them to buy unless the building continues even now in the down times. In my opinion, the smart builders will keep doing what they do best… Build!