The Expert Podcast

Interest rates have spiked up six, seven, maybe even eight percent. Home prices have gone up to where people can't afford the selling prices anymore, and even supply chain issues have created higher costs for goods like paint, lumber, and everything else. So, what are builders doing because of this? Well, it’s real simple: builders are putting on the brakes for new single-family home construction, and this is likely to extend into 2023. This is from ABC News and multiple other news outlets and financial analysts, who have come out with this information, showing that builders are basically saying, "Look, we don’t know if we’re ever going to sell these houses. These prices are too high, the interest rates are too high, and nobody’s buying. People are canceling their existing contracts, so let’s stop building houses."

Fewer homes are being built, so you might think, "Well, that’s a good thing. It’ll help the housing market." Well, maybe not. How is building fewer houses going to help the housing market? If you’re a homebuyer and you love to see builders running into trouble, you might think it’s going to get you a better deal on the house. But it’s not. Their costs are still the same. You might think, "Well, maybe if there are fewer new houses on the market, people selling their resale homes will give me a better deal." That’s not going to happen either because with fewer new houses being built, the result will be fewer houses on the market. If it extends into 2023, that means there will be fewer homes for sale in 2023, 2024, 2025, and so on.

Interest rates aren’t going to come back down to three or four percent anytime soon. In fact, an article from the Wall Street Journal the other day said that prime rates are going to go up to five or six percent, which will push mortgage rates up to eight or nine percent. We’re already seeing some non-standard mortgage programs at the nine to ten percent range. So, this fewer homes being built thing is going to have a domino effect—a ripple effect—in the marketplace for years to come. There’s already a shortage of homes for buyers, as you know, and this will make it worse.

You have to build a certain number of houses every year to keep the housing market fulfilled and flush. For the last 10 years, there’s never been a time when there were too many houses for sale—there’s always been a housing shortage. Even now, with fewer buyers out there, there are also fewer sellers. Yes, there are more houses for sale right now in 2022 than there were in 2020, but they’re still not enough. If you’re a buyer, it’s not like you’re finding easy houses to buy. The prices are too high, and the inventory still isn’t great. We monitor a couple of different markets, and while there are more houses, they tend to be smaller, older homes that need work. The nicer homes aren't out there. People with nice homes are keeping them because they have a low mortgage and can’t replace them.

Builders constructing fewer single-family homes is not a good thing for the future of the housing market. It’s just going to keep the prices high, even with interest rates being high.

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