The Expert Podcast

Are the good times in the party already over for home builders? Well, some articles that came out this week indicate that might be the case. With interest rates past eight—and mark my words, going to 10%—it might be a death knell for many builders. According to this article, home builder confidence has dropped to the lowest level. Home builders are hobbled by high interest rates.

Look, there's no secret that we need more single-family homes in the country. The only place those are going to come from is new home building. There is no house factory like there are car factories. There's no plant that builds houses. Resale homes, existing single-family homes—the supply diminishes because some houses get torn down or become too old. Some houses just never get sold because people keep them. It's not like cars, where people flip them every 3 or 4 years. The only way more houses come into the marketplace is through home builders, and if they're stopping because interest rates are high, that's a problem.

It's even affecting the stocks. Higher rates catch up with home builder stocks. Many of the large builders are seeing their stock prices crash. That means there are two groups of people predicting home builders are going to build fewer houses. When the stocks go down, it signals that stock buyers—the shareholders—think the company isn't going to perform well in the future. At the same time, home builders themselves have lower confidence. What does that tell you? Look ahead, telegraph the future, and see that home builders are going to be building fewer homes.

That does not bode well for the housing market because we're already short on houses. That's what's keeping home prices high. You would think that when rates go from 3% to 8%—soon to be 9%—the prices of homes would go down. They haven't. They've continued to go up. That's because we have a shortage of houses. So, don't expect that when home builders start to pull back on their volume, home prices are going to go anywhere but up, making it even harder to afford a house.